Israel Considers Overhauling High-Tech Option Taxation and Income Brackets

The Ministry of Finance and the Tax Authority are formulating recommendations for significant changes in the taxation of high-tech employees. According to the proposal, employees who fail to exercise their company-granted options at the end of the vesting period will be required to pay a 30% tax upon selling the shares later, losing the current preferential 25% tax rate.

Simultaneously, high-earning employees making between 35,000 and 40,000 NIS per month, who currently face a 35% income tax rate, will benefit from tax bracket adjustments. This adjustment aims to increase their net monthly income by approximately 1,000 NIS. The inter-ministerial team linked these two recommendations, reasoning that high-tech employees affected by the higher option tax will also benefit from the income tax relief.

The "Trapped Profits in Options" Reform

Referred to within the treasury corridors as the "trapped profits in options" reform, officials estimate the move will inject an additional 2 billion NIS annually into state revenues. The strategy encourages employees to exercise options promptly rather than holding shares indefinitely under preferential tax terms.

Data from the Israel Innovation Authority for 2026 indicates that the high-tech sector remains the economy's primary growth engine. In 2025, high-tech output grew by 8.2%, reaching a record 58% of total exports and contributing to roughly 50% of overall economic growth.