A significant amendment will be introduced to Estonian tax legislation at the beginning of 2026, as the tax-free income threshold for individuals will be unified and raised substantially from the current level. The reform will affect almost all wage earners and other recipients of earned income.
Fixed tax-free income of €700 per month
Starting from January 1st, 2026, every taxpayer will be entitled to a monthly tax-free income of €700 (€8,400 per year). Unlike before, the amount of tax-free income will no longer decrease as income increases; instead, all taxpayers will receive the same tax-free amount regardless of their annual income level.
A slightly higher tax-free amount for pensioners
For individuals of pensionable age, the tax-free income will be higher – €776 per month (€9,312 per year). This will improve pensioners’ net income, particularly for those receiving low or average pensions.
Use of the tax-free amount requires an application
Although the tax-free income amount will automatically increase due to the legal amendment, employers cannot take it into account in withholding tax without a declaration from the employee. Therefore, the taxpayer must submit a free-form application to the payer to apply the tax-free amount. The application must be submitted before the payroll date so that the employer can apply the exemption to the correct month’s salary. If the December salary is paid at the beginning of January, a new application must be submitted in December.
Only one tax-free deduction per month
The tax-free amount can be applied only once per month, up to the maximum of €700. If the tax-free amount is not used in a given month – for example, due to not submitting the application – the unused portion cannot be carried over to the following month.
Missed months can be declared in the annual tax return
If the tax-free income was not fully applied during the year for any reason, the unused portion can be declared in the personal income tax return, which must be submitted by April 30th. In that case, the Tax and Customs Board will take the unused tax-free amount into account in the annual tax calculation.