Basis for calculation of national insurance contributions
The National Insurance Institute calculates national insurance contributions in accordance with the income of the self-employed person from the sources enumerated in Section 2(1) and Section 2(8) of the Income Tax Ordinance pertaining to the tax year for which the national insurance payments must be made. Self-employed persons declare their estimated income in the multi-year report form. The amount of the monthly payments of national insurance contributions is determined in accordance with this income or in accordance with the most recent tax assessment in the National Insurance Institute offices. This declaration will be referred to henceforth as a “declaration pertaining to income.” The payments are determined in accordance with income and might change in accordance with changes in the average wage. On receipt of the final tax assessment from the Income Tax Authority for a self-employed person, the NII recalculates the annual national insurance contributions that he must make and informs him of the differential – whether to his credit or to the NII’s credit – if such differential exists.
Self-employed persons who are 18 years of age and over but who have not yet reached retirement age pay their contributions according to the following specifications:
For that share of their income which is 60% or below of the average wage NIS 5,453 (as of Jan 01, 2014) they pay national insurance contributions equivalent to % 6.72 (as of Jul 01, 2002) of that share and pay health insurance contributions equivalent to % 3.10 (as of Jan 01, 1995) of that share.
For that share of their income which exceeds 60% of the average wage up to the maximum level of income for which national and health insurance contributions must be paid, they pay national insurance contributions equivalent to % 11.23 (as of Jan 01, 2006) of that share and pay health insurance contributions equivalent to % 5.00 (as of Jan 01, 2006) of that share.
For the table of insurance rates and amounts for self-employed persons, press here
The National Insurance Law considers you as a “self-employed person” if you belong to one of the following categories:
You engage in your profession on an average of at least 20 hours per week
Your average monthly income exceeds 50% of the average wage.
You engage in your profession on an average of at least 12 hours per week and your average monthly income exceeds 15% of the average wage.
A self-employed person who does not belong to any of the above categories is a “self-employed person who does not suit the definition of the term”; regarding obligatory payments and eligibility for benefits, this individual is considered a person who has an income from sources other than work.
Persons exempt from payment of national insurance contributions
The following persons are exempt from payment of contributions to the NII’s various insurance divisions but must pay contributions to the Work Injury Branch only:
A self-employed person who has not yet reached the age of 18.
A self-employed person in Israel who is not an Israeli resident.
A self-employed person who is work injured, has a permanent disability degree of 100% and receives a benefit under the Work Injury Insurance Law.
A self-employed person who has a payment disability degree of at least 75% and receives a benefit under the Disability Insurance Law.
A self-employed person who has had a temporary general disability level of 75% for at least one year.
Persons who are in arrears in the payment of their national insurance contributions
By law, if you who are in arrears in the payment of your national insurance contributions, you are subject to linkage and fines and may have your property and revenues seized through the Bailiff’s Court, or have the benefit to which you are entitled reduced or canceled. Therefore, it is very important that you pay your national insurance contributions promptly. For further information on financial obligations toward the NII – see here.
Self-employed person who have ceased being self-employed and have closed their business
If you have ceased being a self-employed person and have closed your business, you must apply to the Insurance and Collection Department at the National Insurance Institute close to your place of residence and notify the NII that you have closed your business. The notification can be submitted in writing or through the multi-year report form, and you must register the date on which you closed the business. The notification must be accompanied by authorizations proving that a change has taken place (e.g., the closing of your file with the income tax authorities or with the Value Added Tax authorities, a contract of the sale of your business, an authorization of the termination of the period of rental payment for your business, etc.). The NII will then end your registration as a self-employed person, and, in accordance with the new conditions you have declared, will determine your status and will adjust your account accordingly.
If you were an agricultural worker and the agricultural activity in which you were engaged has been terminated, you must produce authorization of this fact (signed by the farm’s coordinator) and submit it to the Department of Collection in the NII branch close to your place of residence. In accordance with the authorization you have submitted, the NII will determine your new status.
Mixed occupational activities
A self-employed person can also engage in other occupational activities:
- A salaried employee who is also a self-employed person
A salaried employee who is also a self-employed person and who has income from sources other than work
A salaried employee who is also a self-employed person and who receives a pension
A self-employed person who has income from sources other than work
A self-employed person who has income from sources other than work and who receives a pension
An “obstructing benefit” is a benefit that the National Insurance Institute paid you in a certain year, in the wake of a work injury you sustained, and which is obstructing the possibility of any change in the level of income according to which you made a payments before your work accident.
The benefit is calculated in accordance with the payments you made prior to your work accident.
Eligibility for benefits
Self-employed persons may be eligible for benefits from the National Insurance Institute.
The benefits for which self-employed persons may be eligible are in the following categories:
Maternity, children, maintenance (alimony), survivors’, benefit to relatives of a person who has died as the result of a work accident/or in the course of volunteer activity, benefit to relatives of a person who has died as the result of a hostile action, work injury, reserve service, compensation for radiation-affected persons, compensation for persons with transfusion-acquired HIV, accident injury, disability, attendance allowance to severely disabled persons, mobility, injury sustained in the course of volunteer activity, old-age, income support, hostile action casualties.
By law, self-employed persons must personally pay their own National Insurance contributions. The level of payment is dependent on the self-employed person’s age and income.
As a self-employed person, you are responsible for immediately registering with the National Insurance Institute at the local branch nearest your place of residence once you have opened your business or begun your professional activities, although it is preferable that you register even before this.
The following is an explanation of the method of calculation of national and health insurance contributions for self-employed persons who work solely in that capacity.
Minimum income and income ceiling for payment of national and health insurance contributions
This income is equal to 25% of the average wage per month, that is, NIS 2,272 (as of Jan 01, 2014) .
Self-employed persons without any income or whose income is lower than the minimum amount pay the insurance contributions they would have to pay if their income was the minimum amount:
Self-employed persons whose income is no more than 60% of the average wage pay their insurance contributions at a “reduced rate,” provided that they do not work as a salaried employee in addition to being self-employed. Self-employed persons who are also salaried employees already “enjoy” the reduced rate that is deducted from their wages as a salaried employee; thus, they pay the full rate for their income as self-employed persons.
Income ceiling is referred to as “optimal income" or "maximum income". The maximum income per month is NIS 43,240 (as of Jan 01, 2014) .
For the table Maximum and Minimum Income for Calculation of Insurance Contributions and Income Limit
In such cases (for example, where both the husband and wife operate a grocery store), each of the partners must be registered with the National Insurance Institute and must pay his/her insurance contributions separately.