Income tax exemption for people with disabilities —
who qualifies and what is it worth?

If there is one benefit that deserves the title “the most valuable benefit nobody told you about”, this is it. The income tax exemption for people with disabilities, under section 9(5) of the Income Tax Ordinance, can be worth tens of thousands of shekels a year to people who work and earn — and thanks to the possibility of a retroactive refund, sometimes a very substantial one-off sum for years already past.

And yet many people with disabilities in Israel are simply unaware that it exists, or wrongly assume it is “only for people with very severe disabilities” or “only for people who do not work”. In this article we set the record straight: who really qualifies, how the process works, and what matters before you start.

What is the exemption and why does it matter so much?

The state has determined that a person with a high medical disability is entitled to an income tax exemption on income from “personal exertion” — that is, income from work as an employee or as a self-employed person — up to a high annual ceiling. In practice, for people earning an average wage or above, that means a saving of thousands of shekels a month.

And here is the important point: the exemption is aimed precisely at people who do work. Unlike the disability allowance, which is sometimes withheld from people who earn well, the tax exemption is built for exactly the opposite situation: a person with a high disability who carries on working and earning. People who do not work may also benefit from a partial exemption on other income (such as interest), but the main value is for earners.

Who is entitled to the exemption?

The main conditions for eligibility:

• A medical disability of 100% from a single impairment, or
• A weighted disability of 90% or more from several impairments together (using a special calculation, different from the ordinary National Insurance calculation), or
• Blindness as defined in the law

In addition, the disability must be determined for a period of at least 185 days. The longer the period of disability, the higher the exemption ceiling — a disability determined for a year or more entitles you to the full ceiling.

Already have disability percentages? You may be almost there

A point many people miss: if disability percentages have already been determined for you by a National Insurance committee (general disability, work injury, hostile-action casualties) or by the Ministry of Defence — in many cases those determinations can also be used for the tax exemption, without going through a new committee from scratch.

And if there is no existing determination, or the existing one is below the threshold, you can apply to a dedicated income tax medical committee (held through the National Insurance Institute), which will examine the medical condition for exemption purposes. It is worth arriving at that committee prepared, exactly as at any medical committee: full documentation, a proper presentation of every impairment, and an understanding of the calculation.

A retroactive refund — up to 6 years back

This is the part that turns the exemption from “a nice benefit” into “a life-changing sum”: people who were entitled to the exemption in earlier years and did not claim it can request tax refunds for up to six years back. For someone who worked throughout those years with a qualifying disability, that can mean a cumulative refund of hundreds of thousands of shekels.

The condition is of course that the qualifying disability existed in those years — which makes historical medical documentation particularly important here. A chronic illness, an old injury, a long-standing mental health condition — all are relevant.

Which impairments can add up to 90%?

You do not need one “huge” impairment — the calculation combines all of them: heart disease, diabetes and its complications, visual and hearing impairments, orthopaedic problems, mental health conditions (depression, anxiety, PTSD), kidney disease, oncological illness and more. It is often precisely the combination of several “moderate” conditions — none of which sounds dramatic on its own — that reaches the qualifying threshold.

Which makes the mapping stage critical: going through the whole medical file, leaving out no diagnosis, and making sure every impairment is presented and documented. An impairment that is not presented is not counted. We have expanded on this principle in our article on disability percentages.

How does the tax committee differ from the National Insurance one?

Although the committee for exemption purposes is technically held through the National Insurance Institute, its purpose is different — and so is its calculation. The disability allowance committee looks mainly at the effect of the condition on earning capacity; the tax committee looks at medical disability alone, using dedicated calculation rules. Certain impairments are counted differently in the tax calculation, and some are either disregarded or counted in full precisely here.

The practical implication: the result at one committee does not predict the result at the other. Someone given a “low” percentage by the National Insurance Institute may cross the 90% tax threshold — and the reverse is also true. Preparing for a tax committee is therefore a discipline in its own right: knowing which impairments to present, how they are counted, and what documentation strengthens each of them.

Hostile-action casualties and disabled veterans — a higher ceiling

For people whose disability arises from a hostile action or from military service, the law provides an annual exemption ceiling that is higher still than the ordinary one. For hostile-action casualties who work and earn, this is a particularly significant benefit, which is added to the monthly benefits from the National Insurance Institute and does not reduce them.

And this is a point worth emphasising: the tax exemption does not come at the expense of the allowance or the benefit. These are two separate systems — you can and should claim both in parallel.

How do you actually apply?

• Step 1 — check existing determinations: are there already disability percentages from a recognised body? They may be enough.
• Step 2 — apply to the assessing officer: an application for an exemption under section 9(5), with the required forms and certificates.
• Step 3 — a medical committee (if required): where there is no sufficient determination, a dedicated committee is convened. Proper preparation for it directly affects the outcome.
• Step 4 — receiving the exemption and a tax coordination: and after that, applications for tax refunds for earlier years.

Common mistakes

• Assuming “I do not reach 90%” without checking the special calculation
• Leaving out “small” impairments that could be exactly what completes the threshold
• Arriving at the tax committee without preparation and without full documentation
• Forgetting the retroactive refund — and leaving years of overpaid tax behind
• Confusing the National Insurance determination with the tax determination without understanding the differences

The disability allowance is about what you lost. The tax exemption is about what you carry on earning — which is why it is precisely the people who work who lose the most by not checking it.

In summary

The income tax exemption under section 9(5) is one of the most significant benefits available to people with disabilities in Israel — especially those who work and earn. Eligibility is assessed on a disability of 90% or more using a special calculation (or 100% from a single impairment), for a period of at least 185 days, and it can be claimed retroactively for up to six years. If you have a complex medical situation — even several “moderate” conditions together — do not assume the threshold is out of reach. A single professional check can be worth a great deal of money.