Jun 29, 2015

Proposed Law: Self-employed unemployment

There has been a big problem with the way the State deals with self-employed people. We pay our taxes and we pay bituach leumi payments as if we were both the employer and employee (from what I understand), yet self-employed people do not get the same benefits as employed people.

For example, if such a person should God forbid have to close up shop, he does not qualify for unemployment. I understand there are issues with maternity leave for women who are self-employed, making it more difficult for them to qualify.

MKs from Kulanu, Eli Cohen and Roi Folkman, have submitted a law proposal to deal with these problems.

The Knesset Legislative Committee has now approved these proposals, so there is some hope for the future.

The law proposal would give unemployment benefits to self-employed people who have had to close up shop and leave the workforce. This law will give a bit of a security blanket to people starting small businesses, and give them some security in their decision to go into business.
source: Globes

This is good news. The next step would be to convince the US government to stop making self-employed expats pay the 15% social security tax. Salaried employees do not need to pay it, only self-employed workers. That's a bit bite out of the income of a self-employed person, and is essentially double taxation.



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12 comments:

  1. The 15% US self-employment tax represents the 7.5% or so that your employer would withhold from your paycheck if you had earned that money as an employee, plus the additional 7.5% that your employer would have to have kicked in. That sounds like how you describe the Israeli situation: we pay bituach leumi payments as if we were both the employer and employee,
    Why the special call to the US government to eliminte the SE tax?

    ReplyDelete
    Replies
    1. Because there is a tax treaty between the U.S. and Israel, so that one does not have to pay double income tax. It is a quirk of the law that the tax treaty does not extend to Social Security tax as well, so that one who pays Bituach Leumi would not have to pay Social Security tax.

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  2. It would be nice if they also created a class of protection for the small army of not self-employed salaried workers who work for US corporations but have to pay both the employers and employees portion of Bituach Leumi, negotiate the paperwork (hire an accountant) and behave as self employed.). Don't actually make enough to pay taxes but have to open a tik. No benefits, not social protections not only if you are unemployed but also if you are injured. No vacations or legal holidays. No sick leave. No pension. And you forgot some of the taxes like for Mediare/Medicaid that we can't even USE from Israel. Plus you lose part of your salary to getting paid in dollars and needing to convert it (but have to save two salaries before you make enough to do it). At least in theory one can collect Social Security if you pay into it. and its still there.

    ReplyDelete
  3. It would be nice if they also created a class of protection for the small army of not self-employed salaried workers who work for US corporations but have to pay both the employers and employees portion of Bituach Leumi, negotiate the paperwork (hire an accountant) and behave as self employed.). Don't actually make enough to pay taxes but have to open a tik. No benefits, not social protections not only if you are unemployed but also if you are injured. No vacations or legal holidays. No sick leave. No pension. And you forgot some of the taxes like for Mediare/Medicaid that we can't even USE from Israel. Plus you lose part of your salary to getting paid in dollars and needing to convert it (but have to save two salaries before you make enough to do it). At least in theory one can collect Social Security if you pay into it. and its still there.

    ReplyDelete
  4. "and is essentially double taxation."

    Not exactly. Because you also get double pension at the end. If you have two people (US citizens) as follows:

    Person 1 - regular employee in Israel for 35+ years. Pays BL. Files US taxes as requires with most income exempt. At age 62+ will collect no social security from USA, will collect BL from Israel.

    Person 2 - self-employed in Israel for 35+ years. Pays BL. Pays SS. At age 62+ will collect BL *AND* will also collect Social Security (and will be eligible for Medicare when necessary).

    ReplyDelete
    Replies
    1. as far as I know, when BL calculates the amount of your pension, they include Social Security payments in as income and lower your pension accordingly, though it is probably more complicated than this

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    2. How could they possibly know what your SS payments are? First of all, the calculation requires the full history of your US wages. Second of all, they depend on so many other variables (spouse, no spouse, how long, divorce, etc). Third, you can take based on someone else's wage record (spouse, previous spouse). Fourth, they depend on YOU - you choose when to take SS anywhere between age 62 and age 70-something.

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    3. they cant really, but when you fill out the forms for kitzvat zikna you have to include social security payments. I know because both my parents and in laws had to deal with this.
      technically you can leave it off the form, and they might never find out, but that is fraud and you can get in trouble if they do

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    4. Isn't that only for elderly olim that arrive while they ALREADY receive SS (or are eligible). In other words, BL doesn't want to pay people who worked their entire career in USA and credited all their payroll taxes there, and credited almost zero payroll taxes in Israel? But they don't want to entirely close off BL to elderly olim because many of them come from countries that don't pay any social security pensions to people out of the country (Russia?)

      Also, what if you really aren't receiving any SS when you fill out your BL forms (but will collect SS someday in the future)?

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    5. perhaps. I dont know.
      if there is a need to report, that would also be the case even if SS started coming in later. you'd have to update your information.

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    6. Also, logically, it's a matter of fairness too. If you worked in USA say for 15 years, and paid into SS, and got 15 years of credit and therefore get a partial SS pension payment. And you work in Israel for 25 years and paid into BL, and received 25 years of credit, you would get your BL payment. How could it be fair to reduce your BL payment due to the partial SS payment? They were earned and paid for separately!

      The only fairness exception, as I mentioned above, would be the special case of BL paying pensions to elderly olim who didn't pay into BL over their career.

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    7. it is not necessarily a matter of fair.
      As far as I understand it, and I might be wrong, BL pays out a pension to people over the age of retirement. As far as I know, they lower that nmonthly payment if you continue to work and earn over x amount. As far as I know, they consider SS payments to be earnings, meanign your BL payments will be lowered because of current earnings (from SS).

      Again, I might be wrong, but I think that is how it works.

      Anyways, we aren't getting anywhere, so let's leave it at that. Even if it makes sense, why do only freelancers have to pay it and not employees? or vice versa - if employees do not need to, why do freelancers have to?

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