Usage value: The exact same vehicle, and a gap of thousands of shekels between two employees
A company car looks like a free benefit, but in practice, it is an amount added to the payslip and taxed as income. Here is how it is calculated, how much it really costs you, and why your tax bracket is the most important variable in the deal.
Anyone who receives a company car from their workplace gets keys, a fuel card, and maintenance, does not see an invoice, and assumes the benefit costs nothing. At the end of the month, they discover that their net pay is lower than expected. The reason is that the Tax Authority views the company car as income in every respect and adds an amount called 'usage value' to the salary. This amount does not enter the bank account, but it is subject to income tax, National Insurance, and health tax.
How is it calculated?
For vehicles registered from January 1, 2010, onwards, the linear model applies: the monthly usage value is 2.48% of the vehicle's list price when new, rounded to ten shekels. Two critical points: the discount the employer received does not interest the Tax Authority. If the list price is 180,000 shekels and the employer paid 160,000, the calculation will be based on 180,000. In addition, the price does not age. A five-year-old car is taxed exactly like the same model on the day it left the dealership.
There is a ceiling. In the 2026 tax year, the list price is taken into account up to 596,860 shekels, compared to 583,100 shekels in 2025. Above this, the system stops climbing, so a luxury car is not taxed proportionally.
For vehicles with advanced propulsion, there is a monthly reduction that remained unchanged this year: 560 shekels for hybrids, 1,130 shekels for plug-in hybrids, and 1,350 shekels for fully electric vehicles. The reform that was considered, which would have reduced the benefit for plug-in hybrids and increased it for electric ones, was taken off the table at the last moment.
The gap between two employees
Here is the point that most people miss. The usage value is an addition to taxable income, and therefore it is taxed according to the marginal bracket. Two employees in the same company who received the exact same car, with an imputation of 3,000 shekels: the first, in the 20% bracket, pays about 600 shekels a month in income tax. The second, in the 47% bracket, pays about 1,410 shekels. More than twice as much for the same car.
To this are added National Insurance and health tax, at a rate of 12.17% on the part of the salary above 7,703 shekels and up to the ceiling of 51,910 shekels. The result is that the effective cost jumps above the stated tax bracket. An employee earning 20,000 shekels gross and receiving a car with a list price of 180,000 shekels, a usage value of 4,460 shekels, actually pays about 1,925 shekels per month net. That is 23,000 shekels a year, and an effective rate of 43% on the benefit, even though they are in the 31% bracket.
When is it better to opt out
Not every employee benefits from a company car. Someone who drives 8,000 kilometers a year pays full tax just like someone who drives 40,000. Someone who already has a second car at home that barely moves wastes thousands of shekels a year in taxes. And someone who is in a high bracket will discover that the logic of taking the benefit in cash becomes stronger.
Three questions for the payroll accountant solve almost everything: what is the exact usage value of the model offered to the employee, how much does it reduce the net pay according to the tax bracket, and how much gross salary increase can be received instead of the car.
