The way National Insurance (Bituah Leumi) works in Israel, for freelancers. Is you give an estimate of how much you think you will earn each month, they do some little stupid calculation and decide how much money you need to pay them each month (a migdamah). Then for some inexplicable reason, every 2 months you pay them the money you owe them for the previous 2 months of work based on the amount you earned.
Let's say for arguments sake that my migdamah is set at 10%, and it is calculated on an estimated income of 10,000 shekels a month, then theoretically I need to pay 2,000 shekels to National Insurance.
Now what happens if I suddenly start earning 20,000 shekel a month (I wish). You would think that I would need to only pay 4,000 shekels to National Insurance for a 2 month period. Well NO! What happens is, at the end of the year you are required by law to file a tax return. Once the tax department have finished calculating whether or not you have paid enough tax your file is handed over to the National Insurance department. They look at the whole year and work out whether the calculated migdamah was correct or not, depending what you earned for the whole year. If the migdamah was too low then they recalculate the amount you should have paid each bi-month and come up with a figure of how much you owe for that year.
This is what happened to me - I just found out that I need to pay National Insurance 5,247 shekels for a miscalculation in 2003. The problem I have is that I no longer earn the type of salary that I was earning when I was freelance. In an ideal world, I would have put aside the money I would need to cover this debt, but it's not an ideal world and I always spend more than I have saved.
So my accountant tells me it would be worthwhile to try to pay back what I owe for 2003 before the end of 2004, in that way I can get a tax break on the money I am paying now, when I do my 2004 tax return. As it is I have not been working as a freelancer since June this year so I expect to get a nice tax return and some money back from National Insurance once my 2004 tax return is finished.
However, when I went today to the National Insurance office, I was told that as long as I start the payments for 2003 in this year I can get the full amount as a tax deductible for 2004. Unfortunately, the only way you can do this according to the NI office is to pay the amount in full up front (I wish) or to put it on a credit card in payments...
All I can tell you is that I am glad that I am no longer freelance - it's all too much of a headache...
