Taxation of employment income – part 4 – employee benefits
In the previous post, we discussed that employee benefits are subject to taxation. This post will look at some of the more common payments and benefits from employees, and how they are dealt with for tax purposes.
The law requires that employers pay their employees reasonable travel costs from their home to and from work. Typically, this is the cost of the monthly bus-pass (חופשי חודשי). However, there is a cap which the employer is required to pay, currently NIS 25.20 per (work) day. These are of course minimums, and the employer can pay more. This is an actual payment, and is subject to tax and Bituach Leumi as with any other part of the salary.
In the event of reimbursement of car expenses, based on kilometres driven, the reimbursement is based on the actual cost of gas, insurances, wear & tear etc. as determined by the Statistical Society. This is reimbursed net to the employee, so there should be a grossing up on this line of the tlush.
Convalescence (דמי הבראה)
This is an historical relic of the period when the Histadrut (general trade union) was very active and strong in Israel. Nowadays, havra’a is simply an extra line in the tlush. Typically, it is paid once per year, normally in the June or July tlush, although some employers split the payment over longer periods, even if split into 12 equal payments over the year.
The amount you are eligible to depends of (a) the number of years that you have worked for the employer and (b) the sector in which the employer operates – private, public or unionised.
The payment is taxed as per any other element of the salary.
If the employer gives the employee the use of a car (expenses borne by the employer), the employee is getting the benefit of not having to purchase/lease a car of their own, and saves on the monthly ongoing costs.
The benefit ascribed in the tax law is intended to reflect these savings. The actual calculation is extermely complicated and is based on either the cost of the vehicle or the “group” of the vehicle, depending on when the vehicle hit the road. The benefit is lower for “greener” vehicles. This value is added to the taxable income for income tax and Bituach Leumi purposes.
Similarly, if the employer gives the employee a cellphone to use for work purposes, it is assumed that a portion of the calls will be for private use. As such, a fixed monthly benefit of NIS 105 (for 2013) is taxed.
Typically, most employers give their employee gifts before Rosh Hashana and Pesach. These gifts are subject to tax – based on the value of the gift. Some employers will gross-up the value of the gift, so that the employee doesn’t lose out by way of extra taxes.
Since 2008, employers have had to make contributions to a pension scheme on behalf of their employees. [There is also the obligation on the employee to contribute to the scheme, by way of deduction from the salary]. Strictly speaking, the contributions made by the employer should be subject to tax. However, the government wishes to encourage people to save, and so contributions made by the employer are not taxed as a benefit up to a limit. The limit is in the region of NIS 1,600 per month.
Keren Hishtalmut contributions
The Keren Hishtalmut, or study fund, is the government-backed tax-beneficial savings scheme. Employers are not required to offer this to employees, but many do as a perk of the job. For an employee, the tax breaks are two-fold. Firstly, the contributions made by the employer – up to a limit of approximately NIS 1,200 per month – are not considered a taxable benefit. Secondly, the entire fund can be withdrawn tax free (including employer contributions and profits made by the insurance company) once the minimum waiting period was ended (usually six years).
There are of course plently of other examples, and the basic rule is that the value of the benefit provided is added to the taxable salary. For specific advise, please feel free to contact me.