Kahlon’s Tax Cut for Working Parents Means More Net Income

Finance Minister Moshe Kahlon introduced a new tax plan for working parents in 2017. The plan, passed on May 10, 2017, by the Knesset, is intended to increase the net income for families. The plan takes effect retroactively to January 1, 2017.

A major portion of the plan is additional tax credits for working parents. Other elements include subsidies for after-school education frameworks, higher income supplements for low-income earners, and import tax cuts on children’s clothes, shoes and cellular phones.

Credits for Young Children

Under the new plan, tax credit points for parents will be increased and equalized for mothers and fathers.

Prior to the new law, fathers received credit points for children from the year in which the child is born and until the year they turn three. During the year of birth and the year the child turns three, the father receives one point. In the two intervening years, the father gets two points. Mothers were entitled to half a point in the year of birth and two points in the years in which the child turns 1 through 5.

Under the new structure, mothers and fathers will both receive 1.5 tax points from the year of birth, and then 2.5 points from the years in which the child turns 1 through 5. Further, a mother of a newborn child can elect to defer one of her points to the next tax year if she so chooses. This election is made on Form 116ד.

According to the Finance Ministry, this plan will provide each parent with NIS 320 on average in monthly tax relief per child under age one, and NIS 540 on average per child per month for every child aged one to six years.

It should be noted that these increases are in place ONLY for the 2017 and 2018 tax years; for 2019 the credits are scheduled to revert to the previous system.

After School Care Subsidies

Kahlon’s plan also provides subsidies to offset the costs of after school care. The new plan will set the maximum price for afternoon programs at 930 NIS, with an additional subsidy based on need in specific communities.

The plan will also enforce set hours for the afternoon programs, with preschoolers ending at 5:00 p.m. and first- and second-graders ending at 4:30 p.m. In addition, Kahlon’s plan will force afternoon programs to provide a set number of staff. According to the Finance Ministry, the new program will begin in September.

Import Duty Tax Cuts

Finally, Kahlon’s plan removes the import duty on children’s clothing, cellular phones and shoes. This benefit is to the stores themselves, which will then determine if they will pass that savings on to consumers. Several cellular phone providers were seen lowering prices on smartphones immediately following the announcement.