How do tax credit points (nekudot zikui) reduce income tax in Israel?

The Income Tax Ordinance grants residents a fixed number of credit points that lower the tax bill after the tax has been calculated on the bracket table. A resident man receives 2.25 points and a resident woman 2.75 points as the standard allocation. Because each point carries a set shekel value, the combined points produce a band of monthly income on which no tax is effectively paid. Additional points are granted for defined situations, including young children, single parenthood, completion of compulsory military or national service, an academic degree in the year after graduation, and the first years of residence after Aliyah under the new-immigrant schedule.

For foreigners, the key rule is that credit points are generally available only to Israeli tax residents, not to non-residents who earn Israeli-source income. A new immigrant (oleh) receives a generous extra allocation that tapers over the first three and a half years of residency. Salaried employees receive their points automatically through payroll once they file Form 101 (tofes 101) with their employer at the start of each year, while the self-employed claim them in the annual tax return. Failing to file Form 101, or misreporting residency status, is a common and costly mistake that leads to over-withholding. Our guide to Israeli income tax for non-residents explains how residency affects what you can claim.

From the full guide: Israeli Income Tax for Non-Residents

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