Israel May Owe Your Late Parent a Tax Refund: The Six-Year Rule That Closes Tax Year 2020 on December 31, 2026, the Form That Tells the Tax Authority Who the Heirs Are, and What an American Heir Has to Do on the US Side If the Money Comes Back

This is orientation, not legal or tax advice. It maps what exists and the questions to take to a licensed professional. It does not tell you what to do about your own estate or taxes.

Most of what this site has mapped about Israeli tax and a parent's death runs in one direction: what the estate might owe, what the heirs might owe, which years are still open against them. The ledger has a second column, and almost nobody in the family reads it. Israeli income tax is withheld every month on a guess about the year and is owed once a year on the real figure. When the guess ran high, the difference sits with the state until someone files for it. If the taxpayer has died, the someone is the heirs.

The scene is ordinary. A father in Haifa retires at 67 with a pension from his employer and a second, smaller one from an old fund. He never does a tax coordination between the two, because nobody tells him to, and the second payer withholds at the top rate for years. In the last two years of his life he is very ill. He dies in May. His daughter in Maryland spends the following year on the succession order, the bank, and the apartment. Nobody in the family opens his last pension slips, and nobody asks whether the Tax Authority is holding money that was his.

It often is. This page maps the right to ask for it, the deadline that is about to take one year away, the form most heirs have never heard of, and the American consequence that arrives only when the claim succeeds.

The six-year rule, and the year that closes on December 31

Section 160 of the Income Tax Ordinance lets an individual who paid more tax than was due claim the excess back, and sets the outer limit at six years from the end of the tax year. The Tax Authority's own service page for the refund claim, updated in June 2026, spells out the arithmetic: in 2026, claims can be filed for tax years 2020 through 2025. The claim for 2020 can be filed until December 31, 2026. The claim for 2021 can be filed until December 31, 2027, and so on.

So a parent who died in 2021, 2022, or 2023 has, as of this week, every year from 2020 onward still open, and in about fifteen weeks the first of those years shuts permanently. Nothing extends it. The deadline does not know the taxpayer died, and it does not wait for a succession order that is still in process at the Registrar.

Each year is its own claim. A family that believes the father overpaid in 2020, 2021, and 2022 files three claims with three sets of documents.

Why a parent who died is often owed money

Kol Zchut, the Israeli rights encyclopedia run with Justice Ministry support, explains the mechanism in a paragraph. Tax on employment and pension income is computed annually, on the total for the year. It is collected monthly, by the payer, on an estimate of what the year will look like. The estimate assumes the month will repeat twelve times. It does not know about credits the taxpayer never claimed, other payers it cannot see, or a year that ends early.

Four situations recur in the files of elderly parents.

The first is the year of death itself. A person who dies in May received five months of pension, each taxed as if there would be twelve. Kol Zchut gives the parallel case of an employee dismissed in June whose withholding assumed a full year and who is owed most of it back. The logic is the same when the year ends for a sadder reason.

The second is two payers and no coordination. Where a person has more than one pension or salary and never filed a tax coordination, the additional payer withholds at the highest bracket. For a retiree with a modest second pension, that can be years of over-withholding that a single annual calculation would reverse.

The third is serious illness. Section 9(5) of the Ordinance exempts the earned and pension income of a person with a qualifying disability, which the National Insurance Institute describes as a weighted disability of at least 90 percent, permanent or lasting at least 185 days. Many people in the last stretch of a terminal illness met that test and never applied, because applying was the last thing on anyone's mind. Practitioners report that an application already in process continues after death and that the heirs can collect what it produces. Whether a first application can be opened after death, on medical records alone, is a question for an Israeli adviser who does these files, and it is worth asking.

The fourth is interest. Banks withhold tax on deposit interest at source. Section 125D gives retirees born before 1948 a deduction against that income, and the Authority normally computes the refund on its own and pays it into the account the tax came from. When that account was frozen or closed after the death, the automatic route may have had nowhere to land.

None of these is guaranteed to produce a refund. The Authority offers a free online simulator that needs no login, and an Israeli accountant can run the real numbers from the annual slips.

Who is allowed to ask

The Ordinance already has a name for the heir in this position. Section 120 makes the "legal representative" of a person who has died, a term defined to include an heir and an estate administrator, the person who stands in for the deceased before the assessing officer. The voluntary-disclosure page met that section from the liability side. It works the same way on the asset side. Kol Zchut states it plainly: a refund can be claimed for a person who has died, and it is advisable to attach the probate order or succession order so the money is paid directly to the heirs.

The piece most families miss is Form 2805, the Declaration of Heirs or of an Estate Administrator for Income Tax. Its purpose, in the Authority's words, is to let heirs "whose identity is not known to the Tax Authority" declare themselves where the deceased had an income tax file, so that the file can be closed or the estate's income handled. It is signed by the heirs named in a succession order, a probate order, or a court order, or by an estate administrator, with the order attached, and it goes to the assessing office that held the parent's file, by email, mail, fax, or in person. It costs nothing.

Until something like it is on file, the assessing office has a dead taxpayer and no living counterparty. A refund claim signed by an American daughter the office has never heard of is a claim from a stranger.

How the claim is made from abroad

The Form 135 route, the abridged return used purely to claim a refund, is for individuals who were not required to file an annual return: employees and pensioners without a business. From tax year 2019 it can be filed fully online, but the online system begins with identification to the Authority's systems, which is built around a living Israeli taxpayer logging in as themselves. For a deceased parent's years, the workable route is the manual one: the printed Form 135 for each specific year, filed through the Authority's public inquiries system or at the assessing office, usually by an Israeli accountant or lawyer holding the heirs' power of attorney. A parent who had a business, foreign income, or was otherwise required to file a full return is on a different track, the annual return itself, and that is a conversation for an adviser from the first day.

The attachments are the parent's paper trail for that year: Form 106 from every employer and pension payer, confirmations of National Insurance payments, Form 161 if the parent retired in that year, confirmation of tax withheld by banks, proof of any credit being claimed, and proof of the bank account to be credited, by cheque photo or bank letter. Old Forms 106 have to be requested from each pension fund and former employer, which will want to see the order first. That request is usually the slowest step, and the reason to start in September and not in December.

Three practical points are not answered on the Authority's pages and belong on the adviser's list. The form has room for one bank account, and an estate often has several heirs; whether the office will split the payment by the shares in the order, or wants all heirs to consent to one account, varies in practice. Whether the office will pay into an account outside Israel is not stated anywhere official, and most heirs route it through an Israeli account or a lawyer's trust account. And the assessment notice is sent, by default, to the taxpayer's address in the Population Registry, which for a parent who has died is an apartment that may already be sold.

What comes back, and when

An Israeli tax refund is not the bare number. Section 159A(a) adds linkage to the consumer price index and interest, quoted at 4 percent a year on the linked amount, running from the end of the tax year. On a 2020 overpayment collected in 2027, that is more than six years of indexation and interest, in a period when Israeli inflation was not trivial. The rate is set by the Ordinance and can be changed by the Finance Minister with Knesset approval, so the current figure is one more item to confirm before relying on it.

Timing is slow by design. For a person who was not required to file, the refund is due within a year of the assessment, or within two years of the end of the year in which the tax was paid, whichever is later. Heirs should expect months, and with a deceased taxpayer and a foreign claimant, more months.

The same door opens both ways

A refund claim is a return. It asks the assessing officer to look at the parent's year, and the officer looks at all of it. If the parent had income that was never reported, a rented room, a foreign account, a consultancy paid in cash, the claim is the document that puts that year on the desk.

This is not a reason to stay away. It is a reason to look before filing. Section 120(a) caps the heirs' exposure for the parent's own tax at the year of death and the three years before it, and at the value of the estate. A filed return starts the four-year assessment clock in section 145(a)(2), which for an unfiled year never starts at all. An heir who knows the parent's affairs were simple has nothing to weigh. An heir who is not sure should have the adviser read the file before the form goes in, and should read the inherited-debts page alongside this one. An honest accounting has two columns, and a family cannot ask the state to read only one of them.

The American side, which only appears if the claim succeeds

For most American heirs the parent was an Israeli with no US tax life, and the American consequence is modest. The refund is an asset of the estate, collected late. It is part of what the heir inherited, which means it counts toward the $100,000 threshold for reporting a foreign bequest on Form 3520 in the year it is received, and if it lands in an Israeli account in the heir's name, that account belongs on the FBAR. The interest the state adds for the period after the death is a separate item, and how it is taxed is a question for the American preparer.

The harder case is the parent who was also a US citizen: the American who made aliyah in 1985, kept filing Form 1040 from Ra'anana, and each year claimed a foreign tax credit for the Israeli tax withheld from the pension. A refund of that Israeli tax means the credit was too large. US law calls this a foreign tax redetermination under section 905(c) of the Internal Revenue Code, and it requires telling the IRS: an amended return with a revised Form 1116 for each affected year, or, where the US tax does not change, a Schedule C to Form 1116 with the return for the year the refund arrived. IRS Publication 514 sets a penalty of 5 percent of the resulting tax for each month the failure to notify continues, absent reasonable cause. And the instructions to Form 1116 add the sentence that matters most: an increase in US tax from a redetermination is excepted from the ordinary statute of limitations. The parent's 2020 return does not go stale.

After a death, that duty sits with whoever acts for the parent's estate on the American side. In many cases the high Israeli rates meant the parent had unused credits and the US tax does not move, and the whole matter is one schedule. It still has to be filed, and it is far easier to arrange before the Israeli claim goes in than after a deposit appears.

What to gather this week

The claim itself is a professional's job. The heir's job is the file.

The succession or probate order, and the Tabu or bank records that show it has been acted on. The parent's identity number. The name of the assessing office that held the parent's file, if there was one, and any letter it sent after the death. The last six years of Form 106 from every employer and pension payer, which means a written request to each fund now. The banks' annual tax-withholding confirmations for the same years. The medical record of the last illness, with dates, if a section 9(5) question is going to be asked. The parent's American returns for the same years, if the parent filed them. And a decision among the heirs, in writing, about which account receives the money and how it is divided, so that the assessing office is not asked to referee.

Then one call to an Israeli accountant with the question put in order: is there a refund, for which years, and is 2020 among them.

These are the days in the Jewish year given over to accounts, and the tradition is specific that an account is settled in both directions: what a person owes and what a person is owed are entries in the same book. The pages before this one were about the first kind. This is the second. A parent who paid every month for forty years, and paid somewhat too much in the last few, left that entry open. It can be closed by the people the order names, for six years and not a day longer, and for the year 2020 the last day is the last day of December.