Tax refunds for unpaid leave (chalat / חל”ת)

If you have experienced a period of unpaid leave (in Hebrew, chalat / חל”ת) between the years 2015 and 2020, you are probably eligible for a tax refund. Keep reading to find out why.

Income tax is exactly that – a tax which the country charges for all income its citizens report. Unpaid leave (chalat / חל”ת) is an unstable status which has become even more common lately since the start of COVID-19, lockdowns, and the high level of unemployment within the global economy as a whole and the Israeli economy specifically both in 2020 and continuing into 2021. A taxpayer with a status of “unpaid leave” finds themselves somewhere in the grey area between “employed” and “unemployed.”

The unpaid leave status means the employee is interested in or required to leave work for some reason (for a trip, a health situation, or under other circumstances) without having annual vacation days accumulated (or the individual has these days available but doesn’t wish to take advantage of them). With the employer’s permission, the individual may take unpaid leave (chalat / חל”ת) for a period agreed upon by both parties, without severing the employment relationship. Currently, during COVID-19, many workplaces have decided not to fire or dismiss their employees, but they also don’t have the ability to pay them. Therefore, employees are usually willing to accept the status of unpaid leave.

If an individual leaves work for unpaid leave during the tax year, the individual’s taxable income has effectively ceased. In these situations, the likelihood arises that for the income received before leaving for unpaid leave, that individual actually had an amount withheld for taxes as if they would be continuing to work until the end of the year and therefore, this situation creates an entitlement for a tax refund. Anyone eligible for a tax refund can claim what they’re owed by filing a tax return for the applicable year.

This occurs due to the fact that payroll software calculates tax on income based on the assumption that the employee will continue to work for the entire year. Leaving work for unpaid leave during the course of the year invalidates the calculation and almost certainly causes a tax entitlement.

For instance, if you are earning ₪15,000 per month, then take unpaid leave from April until the end of the year, for the months January through April, the payroll software will have calculated your tax withholdings according to the assumption that you would earn 12 x ₪15,000 = ₪180,000, whereas in reality you actually earned only 3 x ₪15,000 = ₪45,000 over the course of the year. Therefore, they almost certainly withheld excess tax from your pay check.

When this happens, tax refunds to which you’re entitled accumulate in the account of the income tax authority – but these refunds don’t return to you on their own, and the income tax authorities are not going to initiate the refund, either. These tax refunds are only returned to individuals who file a request for a tax refund.

If you have been on unpaid leave (chalat / חל”ת), chances are you’ve paid too much income tax. We can assess your tax situation at no charge and find out exactly how much money is owed to you – and take the steps needed to make sure you receive it.