New Mothers
Are you a new mother? Here’s everything you need to know about tax refunds after birth
Mazal tov! ?
New moms are often owed money from the State of Israel, and many times they simply aren’t aware of it, or they’re only aware of certain parts of the money they are owed. Want to know if you’re owed money?
Women are entitled to a 14-week maternity leave (98 days), for which you are also entitled to a maternity allowance (d’mei leyda) payment from Bituach Leumi (National Insurance) as long as you meet certain eligibility conditions for maximum or partial payment. Beginning in 2017, this entitlement includes 15 weeks of payment (105 days). Maternity allowance is paid at the average wage over the prior three months, up to a threshold of ₪1,485 per day (as of 2020) and is received in a single lump sum payment immediately after birth.
Bituach Leumi (National Insurance) will withhold amounts for Bituach Leumi and income tax from the maternity allowance payment. However, on the other hand, not all the details of your employment are taken into consideration when this is done – therefore, you may well be eligible for a tax refund.
What is a tax refund?
In its simplest sense, a tax refund means receiving your own money back which you have paid in excess income tax. In Israel, this is done by filing a tax return to claim these excess payments; this doesn’t happen automatically.
Employers have an obligation to withhold tax from their employees every single month when paying the employees’ salary. Tax withheld by the employer is transferred to the Israel Tax Authority. A tax refund situation is created if more tax is withheld than an employee actually owes. In order to receive a tax refund, you are first obligated to file an income tax return.
If, over the course of the last six years, you have given birth to one or more child, it is reasonable to assume that you are entitled to a tax refund:
- During the 14 weeks of paid maternity leave, the wages you receive from Bituach Leumi were probably lower than that which you were used to receiving from your regular workplace. This is due to the various salary components which are calculated differently or divided up differently when you are not actively working. This means that for that year, for the months you worked, you earned a higher wage and paid higher taxes from what you needed to for that year.
- Maternity leave, according to Israeli law, is very short compared to other countries, so women often choose to extend their maternity leave period. In these situations, where a woman has extended her maternity leave and finds herself in a period of no income, this creates a situation in which her annual income is lower than what was expected at the start of the year – when her tax contributions were calculated. Therefore, if any tax was paid up until the birth and extended maternity leave, there will be an entitlement to a tax refund.
- For the birth, you are entitled to credit points, thanks to which you will pay less income tax. Often, errors are made and some of these credit points are not awarded, so it is very important to follow up and note this with care. In the event that a mistake was made or the credit points were calculated late, you must submit a request for a tax refund so you can receive back whatever excess was paid. It’s also important to know that if you didn’t return to work until the calendar year after the one in which you went on maternity leave, employers often don’t have the ability to provide those credit points, so you must contact the income tax office directly. As of the year 2020, credit points provide you with ₪219 per month and ₪2,628 per year!
You are entitled to:
- 1.5 credit points – in the year you give birth
- 2.5 credit points – in the year after you give birth up to 5 full years after giving birth
- 1 credit point – from age 6 and up to 17 years after giving birth
- Half an credit point – in the year in which the child turns 18
Please note: Both spouses are entitled to credit points for their children (for men, up to age 5), so be sure to ascertain that your spouse is also receiving the correct number of points to which they are entitled.
Do I have to pay income tax on maternity allowance?
Maternity allowance represents a replacement for your wages, which means they require paying income tax – this is different from the birth grant (ma’anak leyda).
Do I have to pay tax on the birth grant? How soon will I receive the grant after giving birth?
The birth grant does not represent a replacement for your wages, and it is paid to women who have given birth to offset the expenses involved in the birth. The birth grant does not require paying income tax, unlike maternity allowance. This grant is paid within a month from the date of the birth to the new mom’s bank account.
The amount of the birth grant varies from child to child:
- First child – ₪1,783
- Second child – ₪803
- Third child onwards – ₪535 total
- Twins – ₪8,915
- Triplets – ₪13,374
You may receive a tax refund up to six years retroactively.
Even if the refund is old, don’t neglect it. This is money you can receive and which is in fact just sitting waiting for you in the State of Israel’s account. Additionally, this amount is accumulating interest and index differentials over the years, meaning that the tax refund amount you’re owed has actually managed to grow.