Are you receiving all the tax credits that you are entitled to?

In a previous post, I explained that tax credits reduce your gross tax liability in order to get to your final tax bill. As such, it is important to ensure that your tax is calculated to take into account everything that you are entitled to.

It should be pointed out that these credits are for calculation purposes only, so you will not get a refund if you have excess credits.

The calculation of credits fall into two broad categories - the points-based system and the expense-based system.

The points-based system awards you a certain number of credit points (נקודות זיכוי) depending on your personal circumstances. These are awarded, in most cases, regardless of income level.

The expense-based system grants credits as a percentage of certain expenditures during the tax year. These are often subject to income-based limits.

Below are some of the more common situations that might entitle you to credits. 

Points-based

A credit-point is worth NIS 218 per month (correct for 2013).

1. Any tax-resident (see this post for definition) is entitled to 2.25 points. Women are entitled to an extra 0.5 points.

2. An oleh chadash gets points for the first 42 months after Aliyah as follows:

3 points per month for months 1-18.

2 points per month for months 19-30.

1 point per month for months 31-42.

The points can be frozen during army services or higher education.

3. Children award their parents with credit-points. The parent must have custody over the child in order to be eligible.

Mothers and single-parent fathers get points for each child as follows:

0.5 points in the year the child is born.

2 points in the years that the child turns 1 to 5.

1 point in the years that the child turns 6-17.

0.5 points in the year that the child turns 18.

Fathers in other situations get points for each child as follows:

1 point in the year the child is born.

2 points in the years that the child turns 1 or 2.

1 point in the year that the child turns 3.

4. A single parent who has minor children gets 1 point.

5. A remarried person gets 1 point if they are paying alimony to their former spouse.

6. A parent paying child support gets 1 point.

7. A child who is not fully functioning entitles the parent to claim 2 points. The criteria are not well defined in law and the authorities have therefore set their own criteria before allowing these points. If you think this may apply to you, contact an accountant who can give you further advice.

8. A soldier who has completed his/her army service is entitled to extra points for 36 months after the completion of their service. A male who served at least 23 months, and a female who served at least 22 months are entitled to 2 points per month. Anyone who served fewer months is entitled to a single point only.

9. Receipt of a degree (1st, 2nd or 3rd) or academic qualification entitles the receiver to extra tax credits. The credits start from the year after receipt of the degree. The exact number of credits depends on the type of qualification received. These credits are available for up to three years - the exact number depends on the qualification and the number of years studied.

It should be added that one of the current budget proposals is to repeal these credits with effect if the 2014 tax year.

Expense-based credits

1. Payments made into a life insurance policy (e.g. for your mortgage) entitles you to a credit of up to 25% of the premiums paid.

2. Payments made into certain types of pension plan entitles you to a credit of up to 35% of the premiums paid.

The overall limit if credits allowed also considers the payments to both life insurance and pension.

3. Donations made to charities (which must be recognised for tax purposes under section 46 of the Income Tax law) entitle you to a 35% credit. A minimum of NIS 180 if donations need to be made over the tax year on order to be eligible. The maximum donations for which you can get credit is 30% of your taxable income. Any excess can be carried forward for up to three years.

Finally, residents of certain towns and villages in Israel are eligible to extra credits. The credit is calculated as a percentage of the annual income, subject to certain limits. The percentages and limits depend on the particular town or village - and can potentially change each year.

There are also a few other situations in which credits may be awarded, but these are rare - best to check with an accountant if you are unsure.