On this page you will find
Overview of the use of basic exemption
The service “My income” in the e-services environment gives an overview of who has made payments to you during the year and in what amount.
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 |
|
If the basic exemption is applied monthly in a bigger amount than the total income allows, the person has to pay additional income tax based on the income tax return by 1 October of the following year.
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 on the basis of the income tax return by 1 October of the following year at the latest.
From 2026, the basic exemption is 700 euros per month, i.e. up to 8,400 euros per year. The difference compared to previous years is that the basic exemption does not decrease as income increases, i.e. regardless of the amount of income, the basic exemption is still a maximum of 8,400 euros per year.
Basic exemption can be applied only by one employer or payer on the basis of a written application of an employee (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 on the basis of 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 an application for basic exemption to the employer or submitting an application where they indicate zero euros as the basic exemption.
Application for basic exemption
The application for the 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.
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).
Although the system for calculating basic exemption will change significantly as of 2026, all applications for calculation of basic exemption submitted to employers so far will remain valid, but in the amount indicated in the application. In other words, if an employee has previously submitted an application for basic exemption in the amount of 654 euros to an employer and the employee does not submit a new application, the employer can calculate the basic exemption only up to 654 euros upon making payments.
If the employee wants to change the amount of basic exemption (e.g. increase it to 700 euros), a new application must be submitted to the employer. If an employee has previously submitted an application to the employer for the use of basic exemption with the wording e.g. “exempt at the statutory rate, according to the amount of the employee’s income”, the employer will be able to apply the basic exemption in the amount of up to 700 euros from 2026 and the employee will not have to submit a new application for that purpose.
Since basic exemption no longer depends on a person's annual income, there is no need to submit a new monthly application in case of variable salary. This is because, as of 2026, the basic exemption is 700 euros per month / 8,400 euros per year and does not decrease with the increase in annual income. If an employee has submitted an application for the calculation of basic exemption to 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.
We recommend that employers inform their employees or that employees check with the employer how the employer has prescribed this process, as the ways in which to submit such an application to the employer may vary from employer to employer. For example, employees of state agencies can change the calculation of basic exemption in the self-service portal for civil servants. There are organisations where the application for amending the basic exemption must be digitally signed and submitted by e-mail to HR.
Example
Situation
In August 2025, an employee submitted an application to their employer regarding basic exemption, in which the employee indicated 654 euros as the amount of basic exemption.
At the beginning of 2026, the system for calculating basic exemption changes and if the employee does not submit a new application to the employer at the beginning of the year, the previously submitted application for basic exemption will continue to be valid as of January.
The employer can apply the basic exemption of 654 euros upon making payments to the employee in 2026.
Solution
As the employee is entitled to basic exemption of up to 700 euros per month / 8,400 euros per year, the employee submits an income tax return for 2026 at the beginning of 2027 and receives a refund of the income tax overpaid in 2026 based on the income tax return.
The employer cannot add up the basic exemption during the year.
If basic exemption is not used at the maximum rate in any given month, the employee can get a refund of the overpaid income tax only after submitting the income tax return of a natural person. The employer cannot take into account an amount exceeding 700 euros in Annex 1 to the tax return form TSD on a monthly basis.
Recommendation
Employers, contact your employees and let them know how you have organised the submission of applications for basic exemption.
Employees, check with your employer if and where you need to submit an application for basic exemption.
Questions and answers on basic exemption
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).
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).
Calculation of basic exemption until the end of 2025
- 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”.
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: 30.04.2026
