Quick Answer: If you worked as a salaried employee in Israel and too much tax was withheld from your pay, you can claim an income tax refund for any of the last six tax years. Most employees apply with the simplified Form 135; the refund is paid into your bank account with tax-free interest and index linkage on top. The Israel Tax Authority does not return the money automatically, so you have to file the claim yourself.

Israel collects income tax from employees as they earn, with the employer deducting tax from every paycheck. The system assumes you will earn at the same rate for the whole year and that the right tax credit points are on file. When either assumption is wrong, you overpay, and an income tax refund in Israel becomes available to you. Foreign workers, new immigrants (olim), and anyone who changed jobs or left the country mid-year are the people most often owed money, and they are also the ones least likely to claim it.

This guide covers who qualifies, the deadline that closes old years for good, the exact forms and documents the tax office wants, and how the process actually plays out. It is written for people dealing with the Israeli system from a distance, often without Hebrew, who want to know whether a refund is worth chasing before they spend a single evening on paperwork.

1. Overview: Why So Many People Overpay

Israel runs a "pay as you earn" model. Under Section 164 of the Income Tax Ordinance, your employer withholds tax from each month's salary and forwards it to the Rashut HaMisim (Israel Tax Authority). The amount withheld each month is a forecast based on your salary that month and the credit points recorded on your Form 101. The brackets are progressive, climbing from 10% on the lowest income up to a marginal 47% plus a 3% surtax on high earners in 2026.

The problem is that the monthly forecast often turns out to be wrong by the end of the year. If you stopped working in April, your final paychecks were taxed as if you would keep earning at that rate through December. If you had two employers, the second one may have taxed you at the top rate. If your oleh credit points were never entered, you paid as though you had none. None of this corrects itself. The assessing officer (pakid shuma) only refunds the difference once you ask.

⚖️ In Practice: A worker who earned for only five months of the year is one of the most common refund profiles. Say you earned ₪18,000 a month from January to May and then stopped. Each of those months was taxed as if your annual income would reach roughly ₪216,000, pushing you into higher brackets. Your real annual income was ₪90,000, taxed far more gently. The gap between the two is your refund, and it can easily run to several thousand shekels before interest is added.

2. Who Is Most Likely to Be Owed Money

You stand a good chance of a refund if any of these describe your last few years in Israel:

  • You worked only part of a calendar year (you arrived, left, or changed jobs mid-year).
  • You had two or more employers at once and never filed for tax coordination (teum mas).
  • You are an oleh or returning resident whose immigrant credit points were never applied to your salary.
  • You contributed to a pension fund, study fund (keren hishtalmut), or life insurance and never claimed the credit.
  • You donated to recognized public institutions and never claimed the donation credit.
  • You took unpaid leave, maternity leave, or had a stretch of unemployment during the year.
  • You hold a disability determination that qualifies for an exemption.

Of all of these, unclaimed tax credit points (nekudot zikui) are the single biggest source of quiet overpayment for foreign nationals, because new arrivals rarely know they exist.

⚖️ In Practice: Each credit point in 2026 is worth ₪242 a month, or ₪2,904 a year, deducted straight off your tax bill. Under the immigrant credit rules, an oleh hadash receives staged points: 1 point in the first year in Israel, 3 points across the next 18 months, 2 points in the following year, and 1 point in the year after that. A resident woman gets an extra half point, and a parent of young children gets more. If your employer never entered these on your Form 101, the full value was over-withheld and is refundable. It is not unusual for olim to recover well over ₪10,000 from credit points alone across two or three open years.

3. How Far Back You Can Claim (the Six-Year Rule)

This is the part that costs people the most money, because there is a hard cut-off. Section 160 of the Income Tax Ordinance is the provision that entitles you to a refund of overpaid tax together with interest and linkage. As a practical matter, you can file a refund claim for any of the last six tax years, counted from the end of each year. Once a year falls outside that window, it closes permanently and the refund for it is forfeited.

Because the clock runs from the end of the tax year, the math is generous if you act in time and unforgiving if you do not.

⚖️ In Practice: Filing during calendar year 2026, the open years are 2020, 2021, 2022, 2023, 2024 and 2025. The 2019 year closed at the end of 2025 and can no longer be claimed. If you suspect you have several years owing, prioritise the oldest open year first, because it is the one about to expire. One claim per year is filed; you do not bundle all six into a single form.

4. Form 135 vs. the Full Annual Return

There are two routes, and which one applies to you decides how much work this is.

Form 135 is the simplified income tax refund application built for salaried employees who are not otherwise required to file. It is the right tool for most foreign workers and olim whose only income was salary. You can submit it online through the Israel Tax Authority portal on gov.il.

Form 1301 is the full annual income tax return. You must use it if you fall under the filing duty in Section 131 of the Income Tax Ordinance, which captures the self-employed, anyone with foreign-source income, holders of 10% or more in a foreign company, high earners above the annual threshold, and people with rental income who did not elect the flat 10% track.

⚖️ In Practice: If Section 131 does not apply to you and your income was salary only, Form 135 is faster and does not pull you into the full reporting regime. But be careful: a foreigner who holds a controlling stake abroad, or who had rental or investment income on top of a salary, usually cannot use the shortcut and should file Form 1301. Choosing the wrong form is one of the more common reasons a refund claim is bounced back by the pakid shuma.

5. Documents You Need to Gather

A refund claim lives or dies on its attachments. Before you start, collect:

  • Form 106 from every employer for each year you claim. This is the annual statement of your salary and the tax withheld.
  • Form 867 from your bank or broker, summarising interest, dividends, capital gains and any tax already deducted at source.
  • Receipts for pension, study fund and life insurance contributions, which support the credits under Sections 45A and 47.
  • Donation receipts from institutions approved under Section 46 of the Ordinance.
  • Proof of credit-point entitlements: your immigrant certificate (teudat oleh), children's birth certificates, an army discharge certificate, an academic degree certificate, or a disability determination.
  • Your Israeli bank account details, where the refund will be deposited.
⚖️ In Practice: The Form 106 is the keystone document. An employer is obliged to issue it by around March 31 for the previous tax year. If you have lost it, or you left the company on bad terms, you can still reconstruct your figures: every employer reports your withholding to the Israel Tax Authority, and you can pull your own data from the Authority's online account or by request. Do not let a missing slip stop you from claiming a year that is about to expire.

6. Interest and Linkage: Why an Old Refund Is Worth More

An Israeli tax refund is not paid back at its face value. Under the Ordinance, the refund is linked to the consumer price index and earns interest at 4% a year, running from the January after the tax year in question until the money is paid. Both the interest and the linkage are exempt from tax in your hands.

That changes the calculus on older years. A refund for 2020 collected in 2026 carries roughly six years of index linkage plus 4% annual interest on top of the original sum. In a period of meaningful inflation, the linkage alone can be significant, and the combined uplift often beats what the same money would have earned sitting in a regular savings account.

⚖️ In Practice: Picture a ₪10,000 refund for the 2021 tax year, claimed in 2026. The Israel Tax Authority adds index linkage from January 2022 forward plus 4% interest per year, and pays the whole grossed-up figure into your account tax-free. This is why there is no need to panic about an older open year still being unclaimed: it has quietly been growing. The only year worth real urgency is the oldest one, which is about to drop out of the six-year window.

7. How to File, Step by Step

The process for a straightforward salaried claim looks like this:

  • Step 1. Pull a Form 106 from each employer for every year you intend to claim.
  • Step 2. Pull a Form 867 from each bank and brokerage if you had investment income.
  • Step 3. Assemble your receipts and credit-point evidence (teudat oleh, donation receipts, pension statements).
  • Step 4. Open the refund claim on the gov.il portal using Form 135, or file Form 1301 if Section 131 requires it.
  • Step 5. Submit, then track the claim through your Israel Tax Authority account.
  • Step 6. Receive the refund by bank transfer, with interest and linkage included.
⚖️ In Practice: A clean salaried claim is usually paid within about 90 days. The statutory backstop is longer: the refund must be made within one year of the date the assessment is issued, or two years after the tax was collected, whichever falls later. One caution before you file: submitting a return also opens that year to the assessing officer's review. If you have unreported income, such as foreign earnings or rental income you never declared, get advice first, because the same filing that triggers a refund can surface a liability. See our guide on voluntary disclosure to the Israel Tax Authority if that applies to you.
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8. Common Mistakes and When to Use an Accountant

A few recurring errors cost foreign nationals real money:

  • Skipping tax coordination. If you had two jobs and never filed Form 116 for teum mas, the second employer almost certainly withheld at or near the top rate. That over-withholding is recoverable, but only if you claim.
  • Letting the six-year window lapse. Every December another year drops off the end. People who "mean to get to it" lose entire years this way.
  • Assuming the refund is automatic. It is not. The Israel Tax Authority keeps over-withheld tax until you ask for it back.
  • Overpaying a refund-chasing firm. Some agencies take 25% to 35% of your refund as commission for completing a free government form. For a simple salaried claim, that fee is rarely justified.

That said, a professional earns the fee when the picture is complicated: multiple income sources, a year you both owe and are owed across different income types, foreign income, a controlling interest abroad, or a disability or residency question. If you left Israel and no longer have a local bank account, an Israeli representative acting under a power of attorney can file the claim and receive the funds for you.

⚖️ In Practice: Remember that income tax is only half the picture. The National Insurance Institute (Bituach Leumi) runs a separate account, and over-paid national insurance contributions follow their own rules and their own claim process. Reviewing both at once is the difference between recovering part of what you are owed and recovering all of it. For the national insurance side, start with our guide on Bituach Leumi for foreigners.