Introduction:

People who have establish physical disabilities of the degrees listed below, are eligible for an income tax exemption on personal earned income and on unearned income.
Those who were eligible before the current tax year, may be entitled to a tax refund retroactively for up to 6 years
Someone who does not meet the degree of disability that make him eligible for the exemption, may contact the Income Tax Medical Committee arranged by the National Insurance Institute
To calculate percentage of disability see the National Insurance Institute website
For additional information, see the Tax Authority website
Attention
In January 2022, the personal income tax-exemption ceiling was reduced for those who have an established disability for at least 365 days and who are not paid a disability pension under the Disability (Benefits and Rehabilitation) Law or under the Compensation for Victims of Hostilities Law.
  • The tax authority initiated tax adjustments according to the updated exemption ceiling for those who made tax adjustments in 2020 and 2021 and meet the conditions of eligibility for a tax exemption in 2022.
  • For additional information see Tax Authority notification from 29.12.2021.

People who have establish physical disabilities of the degrees listed below, may be eligible for an income tax exemption.

Who is eligible?

Those who are eligible for the exemption must meet the following 3 conditions:

Attention
Beginning 15.11.2021, the conditions of eligibility for exemption (as detailed below) have changed.
  • Nevertheless, in the following cases eligibility will be determined based on the old conditions of eligibility:
    • Someone who met the previous conditions, before 15.11.2021, and doesn't meet the new conditions of eligibility (they will continue to be eligible for an exemption as long as they continue to meet those conditions of eligibility).
    • Those who submitted requests to establish disability until 01.12.2021 and who meet the older conditions of eligibility (from before 15.11.2021).

Eligibility beginning 15.11.2021

Beginning 15.11.2021, the following people are eligible for an exemption:

Eligibility before 15.11.2021

Before 15.11.2021, eligibility for exemption was given to anyone who had one of the following established levels of disability based on the laws listed above:

  1. 100% deficit in one area
  2. At least 90% in a a weighted calculation of several deficiencies.

Eligibility of heirs

  • In the event that a person who requested a tax exemption dies, processing of their request continues.
  • If the person dies before receiving the full tax refund that he/she was entitled to, his/her heirs are entitled to tax refund in his/her name.
  • The tax refund includes income that the deceased received during his/her life and not income received after death.

How to claim it?

Contact the medical committee

  • Someone who does not yet have an established degree of disability must contact the income tax's medical committee, which is part of the National Insurance Institute.
  • The National Insurance Institute runs "Yad Mechavenet" - Helping Hand centers that provide free guidance to people before they appear before the medical committee.
  • For additional information see Income Tax Exemption Medical Committee.

Submitting an exemption request

  • Those who have an established degree of medical disability based on one of the laws listed above should fill out the Request for Tax Exemption form (form 1516).
  • If the disability was determined by the National Insurance Institute or the Holocaust Survivors Rights Authority, a copy of the medical committee protocol that determined the degree of disability must be attached.
  • In all other cases a certified copy of the medical committee protocol must be attached.
  • Submit the form with the protocols to the tax assessor's office nearest to your place of residence. (If you don't need a certified copy of the protocol you can also send the documents via fax.)
  • Those who are entitled to an exemption that have an employer or who receive an allowance and have been determined to have permanent disability, will receive general approval from the tax assessor, which will be valid for future years as well. They must give the certificate or approval to the employer or to the pension payer.

Online application for cancer patients and survivors

  • Cancer Patients and survivors can submit a digital application through "Gal Yarok" and "Stop Cancer" initiatives.
  • The medical committee protocols that determined the degree of disability should be attached to the form. (These protocols can be downloaded from your personal area on the National Insurance Institute website.)
  • The form will be sent directly to your relevant income tax branch.
  • An answer regarding exemption eligibility will be given within 10 days from when the online form was submitted.

Assessment at the end of a period of temporary eligibility

  • Someone who has disability established for a set amount of time will receive a request for updated medical documents towards the end of the period of disability.
  • An additional medical committee will determine if the person is entitled to a continued exemption.

Retroactive Exemption

  • Those who met the conditions of eligibility for exemption in the years prior to the current tax year, may receive tax refunds for up to six years retroactively. (For example in 2022 tax return requests can be made from 2016 and on.
  • See "income limits that are exempt from taxes in previous years" below.
  • Requests should be submitted to the tax authority in order to receive a return.
  • For additional information see tax refunds for those with medical disability.

Tax Exempt Income Ceilings

  • The exemption is granted on income up to the ceilings (maximum amounts) set and detailed below.
  • There are different ceiling amounts for personal earned income and unearned income.
  • Someone whose income is lower than the ceiling amount will be entitled to a tax exemption on all income, and those whose income is higher than the ceiling amount will be entitled to a partial exemption up to the ceiling amount.

Tax-Exemption Ceiling on Personally Earned Income

Example
An employee who earns NIS 400,000 per year and has an established permanent medical disability of 100% is exempt from paying tax on all his annual income from work.
  • In cases where disability is established for between 185-364 days (inclusive), the income tax exemption ceiling on earned income is NIS 75,360 (as of 2022). See how the calculation is done for a partial year below.

Tax-Exemption Ceiling on Income Including Personally Earned Income and Unearned Income (not including income from interest paid for physical damages)

  • The tax exempt ceiling for income that includes personal earned income and unearned income (but does not include income from interest paid for physical damages) is NIS 75,360 (a of 2022). This ceiling applies to either period of eligibility (365 days or above, or 185-364 days).
  • The exemption is given on unearned income only in cases in which the unearned income is less than the limit amount - NIS 75,360 (or in a case where there was no personal earned income at all).
Example
If the employee from the previous example has income that is not from working, he is not entitled to a tax exemption on this income because his yearly work income (NIS 400,000), is more than NIS 75,360.
Example
  • A woman who has an established disability is entitled to an exemption from a budget pension (which is considered personal income) in the amount of NIS 50,000 per year, and she rents out an apartment for which she receives NIS 60,000 per year (non-personal income).
  • Because her personal earned income is less than NIS 75,360, she is entitled to an exemption for all this income (NIS 50,000) as well as an exemption for NIS 25,360 from her annual income from the apartment (up to a ceiling of NIS 75,360 on both incomes).

Tax-Exemption Ceiling on Income Including Personally Earned Income and Unearned Income, including income from interest paid because of physical damages

  • For those who income from interest on compensation/insurance paid due to physical damages and deposited into a savings account/savings plan/provident fund:
    • The tax exempt ceiling on personal earned income and unearned income is NIS 309,960 (as of 2022).
    • This ceiling amount applies to both period of disability (365 days and above, or 185-364 days).
  • The exemption is given on unearned income only in cases in which the personally earned income is less than NIS 73,560 (or if there was no personal earned income at all).
Example
  • A child that was in an accident has an established medical disability of 100%.
  • As a result of the accident he receives compensation payments that are deposited into a savings plan. The interest paid from the savings plan is NIS 100,000 per year.
  • Because the child has no personal earned income he is entitled to a tax exemption on the entire interest amount.

Tax exempt income ceilings in previous years:

Tax Year Personally earned income for someone with disability for at least 365 days Personally earned income for someone with a disability for 185-364 days Personally earned income + income that is not from personal earning (if the amount from personal earning is lower than this limit) Personally earned income + income that is not from personal earning interest on compensation money or insurance (if the amount from personal earning is lower then this limit
2021 614,400 NIS 73,560 NIS 73,560 NIS 302,640 NIS
2020 618,000 NIS 74,040 NIS 74,040 NIS 304,560 NIS
2019 615,600 NIS 73,800 NIS 73,800 NIS 303,600 NIS
2018 608,400 NIS 72,960 NIS 72,960 NIS 300,000 NIS
2017 606,000 NIS 72,720 NIS 72,720 NIS 299,040 NIS
2016 608,400 NIS 72,960 NIS 72,960 NIS 300,000 NIS

Calculation the exemption for a partial tax year

  • If a person has been disabled for a period of 365 days or more, and the period of disability started in the middle of a tax year:
  • The exemption for that tax year will be calculated on part of his income.
  • The tax exemption limits will be calculated for that period, relative to the number of days of disability in the tax year and 365.
Example
A person has a permanent disability establish at the end of May 2016 and there are 219 days remaining in the tax year.
  • Eligibility amounts for the first tax year will determined by using the ratio of 219/365 (3/5).
  • The exemption will be calculated based on 3/5 of the person's income for the tax year and 3/5 of the personally earned income limits (608,400 NIS in 2016), unearned income limits (72,960 NIS in 2016) or income including interest paid on financial compensation or insurance due to personal injuries (300,000 NIS in 2016).
  • Personally earned income exemption limit for this year would be 365,040 NIS (based on 608,040 X 3/5).
  • Exemption limit including unearned income for this year would be 43,776 NIS (based on 72,960 X 3/5). If the person's personally earned income is less than 43,776 NIS, he is entitled to a tax exemption up to the amount of 43,776 NIS that can include unearned income as well.
  • If he was paid interest on financial compensation or insurance due to personal injury, the exemption amount for this year - including this income - would be 180,000 NIS (based on 300,000 X 3/5). If the person's personally earned income is less than 43,776 NIS, he is entitled to an exemption on an amount up to 180,000 NIS on all of his income (including income from interest paid on financial compensation of interest due to personal injury).
  • Someone who has an established disability between 185 and 364 days:
    • The exemption will be calculated for part of their income in the tax year in accordance with the ratio between the number of days in the same year for which the disability was determined and 365.
    • If the period of disability established for them continues into the next tax year, the total amount of exemption in the two tax years will not exceed the amount of the ceiling set for the first tax year.


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