From 2026, the basic exemption is 700 euros per month, i.e. up to 8,400 euros per year.
The difference compared with previous years is that the basic exemption no longer depends on a person's income and does not decrease as income increases. Regardless of the amount of income, the maximum basic exemption per year is 8,400 euros.
If a person has reached pensionable age, they are entitled to basic exemption of 776 euros per month, or 9,312 euros per year.
Application for basic exemption
The application for basic exemption must be submitted to an employer in a freely written format.
For example: “Please calculate the basic exemption for me at 700 euros per month from 1 January 2026.”. The application must state the date of preparation and be signed.
Basic exemption can be applied only by one employer or payer based on an employee’s written application (subsection 2 of § 42 of the Income Tax Act). This means that if a person works for several employers, they can submit the application for basic exemption to only one employer. If the employee does not submit the written application, the employer must withhold income tax from the first euro.
The maximum basic exemption per calendar month is 700 euros. This means that employees can indicate a maximum of 700 euros in the application, but if they wish, a lower rate, e.g. 500 euros, can also be applied. What is important is that employers calculate the basic exemption based on the written applications submitted by their employees.
If an employee does not want to use the basic exemption, they have the option of not submitting a basic exemption application to the employer or submitting an application where they indicate zero euros as the basic exemption.
If an employee has submitted an application for the calculation of basic exemption to the employer and indicated 700 euros as the amount of basic exemption, but in some months the employee’s salary is lower, the payer calculates basic exemption only up to the amount of the salary payment.
The application for basic exemption may be resubmitted to the employer at a suitable time should there be a need to increase or decrease the amount of the basic exemption. For more information on submitting applications for basic exemption, please contact your employer.
For pensioners who are also employed, the Social Insurance Board automatically applies the basic exemption of 776 euros to the pension. Pensioners do not need to submit an application for this. If pension is less than 776 euros, for example 676 euros, employed pensioners can submit an application to the employer for the application of the basic exemption in the amount of 100 euros (776 – 676).
Submission of income tax return and calculation of basic exemption per year
- If basic exemption is applied monthly in an amount greater than the total income allows (e.g. if basic exemption has been applied by multiple payers), the person must pay additional income tax by 1 October of the following year based on their income tax return.
- If basic exemption is not applied at all when withholding income tax or the total amount of basic exemption has not been used throughout the year, the overpaid income tax amount will be refunded to the person by 1 October of the following year at the latest based on their income tax return.
You can view the payments made to you and the applied basic exemption amount in the Tax and Customs Board’s e-services environment under “My income”.
Questions and answers on basic exemption
1. Is an employee allowed to divide the basic exemption between two employers (e.g. 300 euros from one employer and 400 euros from another employer) or must the entire basic exemption be applied by only one employer?
From 1 January 2026, only one employer (the withholding agent) can apply basic exemption on the basis of a person’s application. Employees who work in several places must bear in mind that they are entitled to basic exemption in one place of employment only. Employees can decide for themselves in which amount they want to apply basic exemption and with which employers, based on the upper limit of 700 euros per month. If employees do not submit an application for using basic exemption, employers must withhold income tax from the first euro (basis: subsection 2 of § 42 of the Income Tax Act).
2. I changed jobs in January. At the beginning of January, I was working at my old job, and by the end of the month, I was working at my new one. In February, I received my final payment from my former employer and my salary from my new employer. Both employers applied the basic exemption of 700 euros to the salary they paid me in February. What should I do to ensure the basic exemption calculation is in order?
From 1 January 2026, the basic exemption is 700 euros per month, i.e. up to 8,400 euros per year. Basic exemption is applied based on an employee’s written application, and it can be applied only by one employer or payer at a time.
If basic exemption was also applied by the previous employer at the beginning of the year (e.g. on the final payments made in February) and basic exemption is then applied in full with the new employer, the total amount of basic exemption per year may exceed the 8,400-euro limit. In this case, when you submit your income tax return, you will have to pay additional income tax.
To avoid having to pay additional income tax, you can submit an application for basic exemption to your new employer, requesting that basic exemption in an amount that is less than 700 euros be applied. Depending on the amount of basic exemption indicated in the application, you will then not be required to pay additional income tax based on your tax return, the amount of additional tax due will decrease, or you may even be entitled to an income tax refund. If you wish, after adjusting the amount of basic exemption for the year in which you changed jobs, you may submit a new application for basic exemption to your employer for 700 euros so that you can use the maximum possible amount of basic exemption each month in the future (e.g. starting in January of the following year).
Can employees choose to use basic exemption in an amount that is less than 700 euros per month (e.g. 500 euros)?
Yes, employees can submit an application indicating the amount of exemption ranging from 0 to 700. If a person has not used their entire basic exemption during the year, they receive a refund of the overpaid income tax after submitting an income tax return.
If an employee is unable to use their basic exemption in full in any given month, for example due to sick leave or extended vacation (vacation pay has been paid in advance), can the unused basic exemption be used in subsequent months or can basic exemption be used only within a specific month, up to a maximum of 700 euros, without the unused portion being carried over to the following month?
The basic exemption can be applied in 2026 in the amount of 700 euros per calendar month and cannot be carried forward, calculated in advance or summed up. The TSD application in the e-services environment e-MTA does not allow to use more than 700 euros of basic exemption per month when declaring a payment. If basic exemption is not applied in full in some months, it can be applied in full on the basis of an income tax return in the amount of 8,400 euros per year.
How can a person who does not work but whose monthly income consists of rental and investment income use basic exemption?
Such a person also has the right to basic exemption, but they can apply the basic exemption amount only by the means of an income tax return. This means that basic exemption is not calculated on their income during the year, but after submitting the income tax return, the system will automatically take into account the amount of basic exemption up to 8,400 euros.
If a person reaches pensionable age but continues to work, are they entitled to a basic exemption of 700 euros from both their salary and their pension? How to make sure that the 700 euros of basic exemption is calculated from pension?
No, there is no double tax exemption for old-age pensioners. Until the year of reaching pensionable age, the right to basic exemption is 700 euros per month, and starting from the year of reaching the pensionable age, the right to basic exemption is 776 euros per month. This means that the basic exemption applies to the salary or pension, not to both at the same time. In 2026, people of pensionable age are those born in or before 1961.
If a person receives a flexible pension before reaching pensionable age or old age pension under favourable conditions or special pension, a pension under favourable conditions for certain professions and positions before reaching pensionable age, they are entitled to a basic exemption of 700 euros per month. If a person receives a pension and works at the same time and they want the basic exemption of 700 euros be applied to the pension, they must submit an application to the Social Insurance Board.
The Social Insurance Board automatically applies the basic exemption of 776 euros per month only to persons who have reached the pensionable age (i.e. those born in and before 1961).
- Annual income up to 14,400 euros gives 7,848 euros as annual basic exemption.
- If annual income increases from 14,400 euros to 25,200 euros, basic exemption decreases according to the following formula: 7,848 – 7,848 ÷ 10,800 × (income amount – 14,400).
- If annual income is above 25,200 euros, basic exemption is 0.
It is possible to check how basic exemption is taken into account during the year in the Estonian Tax and Customs Board’s e-services environment under “My income”.
Basic exemption in 2025 and 2026
| 2025 | 2026 | |
|---|---|---|
| “Tax hump” | In force | Not in force |
| Person is not at pensionable age | Up to 7,848 euros per year Up to 654 euros per month Basic exemption decreases as the annual income increases. More information: Calculation of basic exemption | 8,400 euros per year 700 euros per month Basic exemption no longer depends on a person's income and does not decrease as income increases. |
| Person is at pensionable age | 9,312 euros per year 776 euros per month More information: Basic exemption at pensionable age | |
Annual income includes:
- income taxable with income tax (incl. foreign income);
- remuneration and other income and dividends received abroad which are not taxed with income tax in Estonia;
- dividends or other payments made from the equity which are taxed at the company level at a standard tax rate 22/78;
- an amount taxed according to the Simplified Taxation of Business Income Act from which the part of the social tax of the business income tax is deducted.
Annual income includes:
- remuneration and other fees (holiday pay, grant, sickness benefit etc.);
- service fees received on the basis of a contract under the law of obligations;
- business income;
- gains from transfer of property;
- rental income, royalties, interest;
- taxable state pension, including the flexible old-age pension and the old age pension under favourable conditions related to certain occupations from I pillar (e.g. occupations that are detrimental to health, superannuated pensions, and the pension of a policeman, prosecutor, judge, official of the National Audit Office, and Chancellor of Justice if a person has not reached the pensionable age);
- payments from supplementary funded pensions (III pillar), which is taxed with 20% tax rate;
- benefits, scholarships and grants, awards, compensations or other income;
- dividends received from an Estonian company that are taxed at a rate of 22/78 and dividends from which income tax has been withheld at a rate of 7%;
- income tax may have already been withheld or paid on dividends received from abroad (the dividends received are taken into account in the gross amount).
Annual income does not include:
- compensations, benefits, scholarships and grants exempt from tax;
- tax exemptions (for example sale of housing or transfer of movable property in personal use) which are not declared in a natural person’s income tax return;
- payments from mandatory funded pension (II pillar) and supplementary funded pension (III pillar) exempt from tax;
- payments (incl. compensations) from mandatory funded pension (II pillar) which have been taxed with 20% or 10% tax rate and
- payments from supplementary funded pension (III pillar) which have been taxed with 10% tax rate.
Last updated: 26.06.2026
