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Are Israeli National Insurance benefits such as maternity pay and disability allowance subject to income tax?

It depends on what the benefit replaces. Payments that stand in for lost earnings, including maternity allowance, work injury allowance, unemployment benefit and reserve duty compensation, are treated as work income and taxed at ordinary rates, with the National Insurance Institute withholding at source. Allowances that are not tied to earnings, such as the child allowance and the general disability pension, are exempt under Section 9 of the Income Tax Ordinance [New Version] 5721-1961. Under established Israeli practice the old-age and survivors' pensions are not taxed as employment income either. The distinction matters most to anyone filing an annual return.

Israeli tax law has no single rule for National Insurance payments. The Income Tax Ordinance taxes income by its source, so a benefit that substitutes for a salary keeps the character of salary. That is why the National Insurance Institute issues an annual statement showing tax withheld on maternity allowance, injury allowance and unemployment benefit, and why those amounts belong on the recipient's annual return alongside employment income. Benefits designed as social support rather than income replacement sit in the exemption list in Section 9. Health insurance contributions are deducted from some benefits as well, which is a separate charge from income tax and is not refundable.

Foreign nationals working in Israel are frequently over-taxed on these payments, because the withholding uses a default rate that ignores the recipient's credit points and any months of the year with no income at all. Someone who took maternity leave, or who was injured and off work for several months, often finishes the year having paid more than they owed. The remedy is a refund claim on an annual return, which can reach back several years. If you are leaving Israel, file before you go or appoint a representative, and check the interaction with your Bituach Leumi status and any totalization agreement.

⚖ In Practice
  • Governing law: Section 9, Income Tax Ordinance [New Version] 5721-1961 (exemptions); National Insurance Law [Consolidated Version] 5755-1995
  • Competent authority: Israel Tax Authority (Rashut HaMisim) for assessment and refunds; National Insurance Institute (HaMosad LeBituach Leumi) for withholding at source
  • Taxed as work income: maternity allowance, work injury allowance, unemployment benefit, reserve duty compensation
  • Exempt: child allowance, general disability pension, mobility allowance and similar benefits not linked to lost earnings
  • Ceiling: earnings-replacing benefits are calculated on income up to the National Insurance maximum insured wage, approximately NIS 50,000 per month (2026)
  • Refunds: an over-withheld year can be reclaimed on an annual return filed up to six years after the end of that tax year; the annual filing deadline is 30 April, with extensions commonly granted to online filers

From the full guide: Bituach Leumi for Foreigners in Israel: Complete 2026 Guide

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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