You’ve always heard about your neighbor, a family member, a friend who suddenly received thousands of shekels in high refunds from the IRS, and you wondered why he was and I wasn’t. Well, you can also find out if you are entitled to an income tax refund.
What is a tax return?
A tax refund is literally a tax return receipt (provided that a person has paid tax) from the IRS under various conditions.
Why is a tax refund due?
A tax refund is due, according to the law, to those who transferred more money to the IRS than should have been transferred.
One of the most common reasons more money is transferred to the IRS is that income tax is paid on an annual basis, starting January 1 and ending on December 31, not on a monthly basis, as many think. Let’s call it a “tax year.”
To illustrate, let us give an example: an employee who started any work in November and from the beginning of the tax year did not work at any job, and the employment agreement with the employer is that the employee will receive NIS 12,000 gross each month, so in the year that the employee started working he worked for two months and earned NIS 24,000, then for the months of November and December the employee will not be obligated to pay tax, because his average monthly salary is NIS 2,000 (24,000/12 months), Therefore, he will be entitled to a refund from the IRS if he paid tax. It should be noted that the employer in the above example was obliged to make a cumulative calculation only from November because it is possible that the employee did work at a previous place of employment during the year and therefore the employer is obligated to deduct income tax for these two months with an average salary of NIS 12,000 per month, unless the employee contacts the tax assessor, declares to him that he started working this year only in November and receives approval from the assessing officer for the employer, Then the employer deducts tax according to the certificate from the assessing officer.
Learn more about tax coordination>>
There are other reasons for which a tax refund is due, such as deposits into provident funds and study funds, insurance (including mortgage insurance), children (more on this subject later – since 2012 there has been a significant change in the law), a discharged soldier, payment of tax on deposits and securities, eligibility for a degree, credit due to the acquisition of a profession, credit for new immigrants, maintenance of a relative in an institution, donation to a public institution, expenses to commemorate a soldier and more.
How many years back can you settle accounts with the IRS?
Filing income tax returns and receiving tax returns is limited in the period and tax returns can be received up to six years from the end of the tax year for which an income report was submitted.
In other words, in 2018 it will be possible to receive a tax refund for the tax years 2012 and later, and not for earlier years. In order to receive a tax refund, an income report must be submitted to the Income Tax Authority. For salaried employees, a “Tax Return for Employees” form must be filled out, which is slightly easier to fill out than the “Report on Income” form intended for those who are liable to submit an annual report. To calculate the annual income tax for employees you can use thesimulator of the income tax.
Together with the “Tax Return for Employees” form, documents regarding the required income, deductions and personal credits must be presented, such as Form 106 (annual concentration on salary), certificates from the National Insurance Institute for benefits paid (for example, payment of unemployment benefits), certificates from the local authority regarding place of residence in case of residence in frontier communities, Form 161 for compensation, medical certificates, annual certificates from provident funds, study funds, etc.
An employee report submitted by an individual who is not required to submit an annual report does not have deadlines set in the Ordinance, and therefore they can be submitted to the Tax Authority at any time.
The tax refund is linked to the consumer price index and bears an annual interest rate of 4%. Interest and linkage differentials are tax-free.
In conclusion: more and more employees are discovering that the IRS owes them money. Tax returns are actually money collected from you by the IRS, but for various reasons you deserve to get them back. So why doesn’t the IRS make the effort, and initiate its own tax return? This is really a good question, but the fact is that in order to get back the money you deserve, you just have to know how to ask.
Credits
Credit points mean tax savings and their purpose is to ease the payment of tax, so that employees receive a reduction in the amount of tax paid on their taxable income.
Every resident of Israel is entitled to a minimum of 2.25 credit points. In order to encourage various populations to go out to work and to help the weaker sectors, additional credit points are given to different segments of the population, such as new immigrants, discharged soldiers, women, children up to age 18, single-parent families, and more.
A credit point has a monetary value that is updated once a year. For the purpose of calculating the tax payable, multiply the employee’s total credit points by the monetary value of the credit point for that year and subtract this amount from the amount of tax payable before lowering the credit amount. In 2017, the value of a credit point per month is NIS 215 and the annual value is NIS 2,580.
For example, an employee who has 2.25 credit points and the marginal tax percentage he has to pay is 30%, since his annual salary in 2017 is NIS 100,000. We will take the value of the credit point in 2017 (2,580) multiplied by 2.25 credit points due to him (a total of NIS 6,450) and this amount will be deducted from the annual tax he must pay.
In order to calculate how many credit points you are entitled to, use income tax calculators:
It is worth paying attention
When a child is born during the tax year, it is recommended to immediately update the employer and make sure that you receive the credit points due. A credit point is an annual credit point.
For example, a man who had a child in November 2012 will receive a credit point from January 2012.
