Income Tax Exemption Based on Medical Disability

What the Exemption Is—and Is Not

This is an exemption from tax on taxable income, up to the limits set for each tax year. The limits may vary by type of income and duration of disability. It is not a cash benefit, and approval does not automatically eliminate every other tax or charge.

A medical disability rating of at least 75% may support certain provident-fund tax relief, but it is not, by itself, sufficient for the general income tax exemption.

Medical Thresholds

A person who has been assigned 100% medical disability for one impairment, or at least 90% weighted medical disability for several impairments, permanently or for at least 185 days, may qualify if the other requirements are also met. For a determination covering a period beginning on January 1, 2022, at least one impairment included in the weighted calculation must be rated at 40% or more. Holders of a Certificate of Blindness issued by the Service for the Blind may apply directly to the Israel Tax Authority.

When several impairments are present, the percentages are combined under the weighted-calculation rules and are not added arithmetically. The onset date of each impairment also matters because it may affect the exemption period.

Who Decides, and Which Form Is Filed?

When an existing recognized medical determination meets the requirements, the applicant requests the exemption from the Israel Tax Authority using Form 1516. When there is no qualifying determination, the applicant requests a referral to a medical committee using Form 169 and pays the current fee.

National Insurance conducts the medical committee for tax purposes, but the Israel Tax Authority decides whether to grant and implement the exemption. A request for a tax refund for prior years is a separate process and is subject to the applicable statutory deadlines.

How the process works

1. 01

   Determine whether an existing medical decision may be used for the exemption.

2. 02

   Map all medical impairments and the onset date of each one.

3. 03

   File Form 1516 with the Israel Tax Authority, or Form 169 for referral to a medical committee, as applicable.

4. 04

   If a committee is required, submit the complete medical record and, after the decision, return to the Israel Tax Authority to implement the exemption.

5. 05

   If eligibility is established for an earlier period, file a separate tax-refund request for each year still open under the current rules.

Documents you may need

• Protocols and decisions from prior medical committees.
• Current medical records from every relevant area of impairment.
• Records showing the onset date of each impairment and the duration of disability.
• A Certificate of Blindness, if applicable.
• Form 1516 or Form 169, as applicable, and proof of fee payment when a committee is required.
• Pay stubs and income records requested by the Israel Tax Authority for the exemption or refund application.

Common mistakes to avoid

• Confusing degree of incapacity with medical disability.
• Omitting a medical impairment or important record from the file submitted to the committee.
• Adding disability percentages arithmetically instead of applying the weighted medical calculation.
• Failing to document the onset date of an impairment and the period for which the exemption is requested.
• Assuming that exemption approval automatically produces a refund without a separate refund request.
• Relying on fees or exemption limits from a prior year. Check the official source before filing.