Last week, the President also promulgated the Act that cancels the increases in the income tax rate and the entrepreneur account tax rate planned for 2026. This means that in 2026, the income tax rate will remain at 22% and the entrepreneur account tax rate at 20%.
As a result of the amendment to basic exemption, many employees will have more money than before in their hands from the wages earned as of 1 January 2026. In order to apply the maximum amount of basic exemption, Aune Maria Marjapuu, leading specialist of the Tax and Customs Board's income tax department, advises employees and employers to communicate on this topic. “Usually, employees must submit an application to their employer in order to change the calculation of the basic exemption. When working in several places, it must be borne in mind that the calculation of basic exemption of up to 700 euros per month can be applied by one employer only,” she said.
The calculation of basic exemption can also be set at zero euros for the year. In this case, the overpaid income tax will be refunded to an employee after the submission of an income tax return in the following year. This is the case if the employee does not have any other income that could give rise to income tax liability.
One in three employees in Estonia earns a gross salary of over 2,100 euros. If an employee earning a gross salary of 2,100 euros uses the maximum basic exemption, they will receive 154 euros more from the wages earned as of 1 January 2026.
In the new year, the basic exemption for people at pensionable age is still 776 euros per month, or 9,312 euros per year. This is applied automatically by the Social Insurance Board upon the payment of pension. If a pensioner works and his or her monthly pension is less than 776 euros per month, the employer can apply the employee's balance of basic exemption to their monthly salary.
“For example, if an employed pensioner receives a monthly old-age pension of 600 euros, their basic exemption balance is 176 euros. In this case, we recommend that the working pensioner ask their employer to apply the balance of basic exemption of 176 euros per month to their wages,” explained Marjapuu.
The Tax and Customs Board recommends that employers inform their employees at the latest in December of what needs to be done in their organisation or company in order to change the calculation of basic exemption. This process may vary somewhat from one organisation to another.
In Estonia, there are employers who have set the maximum basic exemption calculation for their employees automatically. This is the case, for example, in government authorities where the State Shared Service Centre has made a corresponding amendment to the self-service portal of civil servants for all employees working full-time as of 1 January 2026.
You can read more about the calculation of basic exemption on the website of the Tax and Customs Board. It also provides answers to frequently asked questions.
