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:
Income for the purpose of calculating national insurance contributions
Under Section 345 (B) (1) of the above law, the income of self-employed persons for the current tax year is determined in accordance with the final income tax assessment for that tax year before the inclusion of any exemptions, deductions and credits to which the self-employed person is entitled in accordance with the Income Tax Ordinance,
and after the following sums have been deducted: 52% of the amount of national insurance contributions that the insured person must pay (excluding health insurance contributions)
A portion of the amount that the insured person set aside for a providence fund (the deducted amount having been determined by the Income Tax Authority).
Prior to receipt of the income tax assessment for that tax year, the national insurance contributions of a self-employed person are calculated on the basis of last income information received by the NII up to 31/12 of the previous year. Following the receipt of the tax assessment for that tax year, the differential payments (or credit) will be determined.
Calculation of deductions (as of Jan 01, 2024)
The function we use to calculate quarterly (3 months) deduction is:
y - Quarterly income
z - Percentage of national insurance contributions allowed to be deducted pursuant to section 47 (A) of the Ordinance (52%)
m - Average Wage under National Insurance LawUnder the National Insurance Law, the average wage is calculated according to a method determined in the Law, on January 1st of every year, and afterwards each time that a compensation is paid. [NIS 12,536 ]
From 60% of the Average Wage under National Insurance Law, insurance contributions are deducted according to a reduced rate. Insofar as we are dealing with a quarter, we multiply threefold.
- t1 - Reduced rate [2.87% ]
- t2 - Regular rate [12.83% ]
X - Insurance contributions payment basis
Example of calculation of national and health insurance contributions for a self-employed working solely in that capacity, earning an income, on January 2024, of NIS 12,000:
- Income per month - NIS 12,000
- Reduced rate of national insurance contributions - 2.87%
- Regular rate of national insurance contributions - 12.83%
- Reduced rate of health insurance contributions - 3.1%
- Regular rate of health insurance contributions - 5%
- Average wage in the economy - NIS 12,536
To obtain the amount basis liable of insurance contributions for a quarter, above data is input in the formula:
36,000+[ 1.8*12,536*(0.1283-0.0287)*0.52 ] = 34,844
1+0.52*0.1283
- Quarterly basis liable of insurance contributions - NIS 34,844
- Reduced rate basis - 60% * 3 * 12,536 = 22,565
- Regular rate basis - 34,844 - 22,565 = 12,279
- National insurance contributions at reduced rate - 2.87% * 22,565 = 648
- National insurance contributions at regular rate - 12.83% * 12,279 = 1,575
- Health insurance contributions at reduced rate - 3.1% * 22,565 = 700
- Health insurance contributions at regular rate - 5% * 12,279 = 614
Total of quarterly insurance contributions - NIS 3,537