How is income tax calculated on salary?
The income tax paid on the salary is calculated according to tax brackets, the higher a person’s salary, the higher the tax will be deducted from him. A deduction is actually made according to an estimate of the amount of annual salary that the employee is expected to receive.
The tax is calculated on the total annual income and in fact this amount can be calculated accurately only after the year ends. However, the tax is withheld, meaning that the employer calculates the tax and deducts it from the salary every month, when they do not work part of the year, work in several jobs, change jobs, situations arise in which the tax deducted does not represent their annual salary.
For example, the tax calculation will be: for month 1/19, the tax will be calculated according to the tax brackets for 2019 divided by 12 (the assumption is that wages will remain constant throughout the entire year). Assuming that the employee remains at the same place of work, the tax amount for month 2/19 will be calculated according to the cumulative amount of month 1/19 and 2/19 and the tax will be calculated according to the annual tax bracket divided by 6.
Why is it worthwhile to conduct tax coordination?
In certain cases, it is estimated that the employer will be much higher than the actual income and a situation will be created whereby the tax payment will be made at a much higher rate than what the employee is liable for.
In what cases is it worthwhile to conduct tax coordination and why?
It is worthwhile to conduct tax coordination in the following common cases:
- Work at more than one workplace – When the employee works at more than one workplace, the business is obligated to deduct tax at a rate of 47% from the other workplace onwards unless tax coordination is conducted.
- Changing jobs during the year – Since there are usually gaps between the wages paid at the two workplaces, the employee may pay a higher tax than he owes. For example, in the first workplace, the employee’s salary is deducted tax according to an annual estimate of 12 months multiplied by the salary he received, with the change of place of work and the change in conditions, the employer calculates the salary high for tax payment according to the new salary multiplied by 12 months. In practice, the employee’s annual salary was a combination of the two, and the tax has to take into account both salaries and the transition between jobs. Sometimes the transition takes place after an interim period of unemployment, and in fact the worker worked only part of the actual year, and therefore he paid a higher tax than he owed.
- Work only part of the year – by default, the employer will multiply your monthly salary by 12 to estimate what your annual income will be and you will pay tax on this salary when in fact you worked only part of the year and your cumulative annual salary is lower and therefore the tax liability is smaller.
- Receiving a retirement pension in addition to wages.
- Income as self-employed in addition to salary as an employee.
- An employee who receives passive, taxable income such as taxable rent and rewards from the sale of books.
How do I arrange tax coordination?
Tax coordination can be arranged in three ways:
- Tax coordination through the Tax Authority website – enter personal details, attach a completed and scanned Form 116 , as well as additional documents such as salary slips. The Assessing Officer will determine the tax rate to be deducted from the income and prepare the certificates to be delivered to the employer(s). The certificates will be ready within 5 working days from the date of submission of the application, a notification will be sent when the certificates are ready and can be printed at any time. Tax coordination can be conducted more than once a year.
- Tax coordination through a placement officer – Form 116 must be filled out, printed and signed, and submitted to the tax assessor in the area of residence, along with the relevant certificates. Look at “Tax Coordination and Tax Returns” at the tax authority office near you. Upon receipt of the permits, they must be presented to the employer/employers.
- Tax coordination through a qualified representative – an accountant or tax advisor can handle tax coordination for you. The representative will receive the details and documents from the employee and submit them to the assessing officer. The representative will charge a fee for the service. Upon receipt of the permits, they must be presented to the employer/employers.
I work in two jobs, how do I coordinate?
When it comes to tax coordination, the permanent place of work with the higher salary should be determined as the main place of work, and receive the full credit points that the employee is entitled to in the salary of this workplace. The secondary workplace will have tax coordination and the tax will be at a fixed rate of % of the salary without credit points.
How do I know if I’m entitled to a tax refund for the previous year?
At the beginning of each year, it’s a good idea to collect all 106 forms from the previous year’s workplaces. In the Income Tax simulator (currently only in the Internet Explorer browser), you can check whether a tax refund is due. You can apply for a tax refund independently or for a fee through a professional: an accountant or tax consultant and online companies that offer to check eligibility for a tax refund, sometimes free of charge, and submit the request for a paid eligibility refund.