Calculating the Basic Exemption from 2026

The “tax hump” that has been in place for eight years will be abolished, and starting from 1 January 2026 a uniform basic tax exemption of €700 per month (€8,400 per year) will apply regardless of a person’s income level. For those of retirement age, a slightly higher exemption will continue to apply—€9,312 per year.

The tax hump means that from an annual income of €14,400 the basic exemption starts to decrease, and if annual income exceeds €25,200, the exemption cannot be used at all. This has left many people wondering whether to submit a request to their employer to apply the basic exemption, and in what amount, so as not to be faced with an unpleasant surprise of an additional tax bill when filing the annual return (in cases where actual annual income turned out higher than expected and the basic exemption should therefore have been applied in a smaller amount during the year).

From the new year, however, you will no longer need income forecasts to determine the size of the basic exemption, because it will no longer depend on annual income. As before, to have the exemption applied on an ongoing basis, you must submit a free-form request to the employer. In each calendar month you may deduct no more than 1/12 of the annual exemption, i.e., €700; in other words, the payer cannot apply any unused portion in subsequent months. If for any reason the exemption has been partially or fully left unapplied during the year, it can be taken into account when filing the individual income tax return[1].

Tax incentives, including the basic exemption, may be used by Estonian residents as well as residents of the European Economic Area[2] who have income taxable in Estonia. Therefore, EEA residents may also submit a request to their employer to apply the monthly basic exemption.

As a reminder, as of 1 January 2026 the income tax rate for both companies and individuals was scheduled to rise to 24%, but the government has pledged to abandon this. The final vote to repeal the increase will take place in the Riigikogu on 3 December.