Unemployment

An employee is entitled to unemployment benefits (d’mei avtala) in the event that they are fired from their place of employment or after 3 months from the day of quitting or resigning from the place of employment. The amount of unemployment benefits is calculated in accordance with the salary that employee was receiving prior to unemployment.

During the period an individual is receiving unemployment benefits, Bituach Leumi (National Insurance Institute) withholds tax at the source and pays the individual the balance. Just as employers withhold taxes from the pay check, Bituach Leumi withholds tax from unemployment benefits payments, along with money for Bituach Leumi and health insurance. This tax withholding is not coordinated with the appropriate annual tax bracket 99% of the time.

As a result of this, on an annual basis, it’s possible that Bituach Leumi has withheld too much tax, in which case, you are entitled to a tax refund. You can claim the refund you’re entitled to by filing a tax return.

It should be noted, additionally, that Bituach Leumi doesn’t take into account all employee details, yet another reason it’s possible that Bituach Leumi has withheld a higher amount of tax, which can also lead to entitlement to a tax refund.

Other reasons for a tax refund for individuals who have been unemployed

In a case where you worked for part of the year and finished in your workplace, there is a chance that you’re entitled to a tax refund. The reason for this is that the wages of salaried workers are calculated monthly, under the assumption that the employee will complete an annual period of employment (from January to December). In the event that the employee finishes working in the middle of the year, a situation arises where it’s possible they have paid too much tax. And whenever excess tax has been paid, this puts you in an ideal position to request the tax refund to which you’re entitled.

Example:

Steven began working for a large investment firm in January 2019. His salary was ₪12,000 per month. In August 2019, Steven decided to end his employment with the investment firm and went to the employment office (lishkat ta’asuka) to register his unemployment.

Is Steven entitled to a tax refund for 2019?

In the situation described here, Steven’s cumulative salary to August 2019 was ₪96,000. His employer’s payroll system had actually based its calculations on the assumption that Steven would continue working there until December 2019, meaning, that he would earn ₪144,000 in 2019. But in fact, Steven only worked until August, and therefore, earned ₪48,000 less.

In 2020, when we were brought in to assess Steven’s eligibility for a tax refund, we took into account the amounts Steven received in wages in addition to amounts he received for unemployment benefits from Bituach Leumi (National Insurance Institute), which are subject to tax.

After summing up all the facts, it seems there is a high probability that Steven is indeed eligible for a tax refund.

Are unemployment benefits the same as the salary I was receiving before unemployment?

Unemployment benefits will not be the same as the salary you were receiving while you were working. They are calculated according to your age and income during your employment over the six months prior to the start of your unemployment.

How much money will I receive while unemployed?

Unemployment benefits are paid according to your income level and age. While the minimum age for unemployment benefits is 20, individuals over 28 will receive higher percentage payments for unemployment benefits than those who are younger. Unemployment benefits are paid as a percentage of an individual’s average daily salary; the higher your previous salary was, the lower the percentage of that amount you will receive (for example, individuals previously earning ₪3,000 per month will receive 80% of that salary, or ₪2,400; individuals previously earning ₪20,000 per month will only receive 45% of that salary, or ₪8,970).

The maximum amount of unemployment benefits it is possible to receive is ₪422 per day for the first 125 days of your period of unemployment. From the 126th day onward, maximum unemployment benefits decrease to ₪280 per day.

In order to be entitled to unemployment benefits, you must be employed for 12 of the previous 18 months prior to your period of unemployment.

Due to the coronavirus (COVID-19) crisis in Israel, it has been established that even individuals who only worked 6 out of the previous 18 months will be eligible to receive unemployment benefits.

Is it possible to apply taxes owing for unemployment benefits received in one tax year to the following tax year?

Date of payment for unemployment benefits and tax refund:

Please note that tax payment is made on an annual basis for money which was actually received during that year. Despite this, Section 8C of the income tax ordinance allows you to apply money received during the following year to the year which has already passed.

This means that you will receive your first unemployment benefits payment immediately after your claim for unemployment is processed. After that, you’ll receive all unemployment benefits payments on the 17th of the month for the previous month. We recommend using a simulation to determine the optimal tax refund based on the total of all money received from unemployment benefits in a given tax year.

For how many years can I retroactively claim a refund of tax paid on unemployment benefits?

The time period for a tax refund request can expire, and it is only possible to request a refund for the previous 6 years.

In other words, in 2021, you can request refunds for the years 2015 to 2020.

Please note that money from a tax refund which is not requested before this entitlement expires will be lost. Nobody will get in touch to update you about tax refunds you’re entitled to – instead, it is taxpayers’ right to assess their own eligibility for a tax refund.

If I become unemployed in the middle of a year and return to work, am I still entitled to a tax refund?

If you became unemployed in the middle of the year and returned to work that same year, you could absolutely be entitled to a tax refund if you were not continually working at the same place of employment over the course of the entire year.

In this case, it’s possible excess tax was deducted, in which case, you can request a refund from the tax authority.

It’s important to run a simulation prior to submitting your claim so you will not find yourself in a situation where you owe taxes.