Benefits and pension taxed with income tax

From January 1, 2025, a separate tax-free income of 776 euros applies to people who have reached the old-age pension age.

If you reach the old-age pension age during 2026, your tax-free income will be calculated to the extent of the average old-age pension from January 1, and you will no longer be subject to the general tax-free income.

Tax-free income different from the general one is only related to reaching the old-age pension age and does not depend on whether you are retired or working or what type of pension you receive.

The Social Insurance Board automatically calculates the tax-free income from the pension to the extent of the average old-age pension. There is no longer a choice whether to count tax-free income from pension or not.

• If you are eligible for a flexible old-age pension before the old-age pension age or you receive an old-age pension on preferential terms, the general tax-free income (700 euros) applies to you until the year you reach the old-age pension age.
• If you have used the option to postpone receiving your pension, you can use the tax-free income of 776 euros as you wish from other incomes, for example from wages.
• If, in addition to the pension, you receive other benefits subject to income tax from the Social Insurance Board (e.g. loss compensation) and the tax-free income from the pension remains unused, then if you want to use it from the loss compensation, you must submit a tax-free income statement to us.

EXAMPLE 1: A person of old-age pension age receives an old-age pension of 600 euros and compensation for damages of 500 euros. We consider that a person's total income is 1,100 euros per month (600+500) and he is entitled to a tax exemption of 776 euros per month. The tax-free income from the pension remains unused in the amount of 176 euros (776-600). If you submit an application to the Social Insurance Board, the remaining income tax-free balance of 176 euros will be applied to the damage compensation. However, you can instead have it applied to your salary or get the income tax exemption back with an income tax return.

EXAMPLE 2: A person of old-age pension age receives a pension of 500 euros and compensation for damages of 150 euros per month. The person has requested the calculation of tax-free income from the damage compensation. In addition, a person is paid 50 euros per month from the II pillar of the pension from the Pension Center. Both pension, damage compensation and pension II pillar payouts are income on which income tax is calculated. Tax-free income is calculated first from the pension, then from the damage compensation, and if the total is less than 776 euros, then the tax-free income is also automatically calculated from the II pillar payments.

Working pensioner

If your pension is less than 776 euros, you will not use part of the tax-free income. You can transfer it to your salary. To do this, you must submit a statement of tax-free income to the employer and also indicate the amount of the unused part of tax-free income, which the employer considers when withholding income tax from wages.

If you reach retirement age and start receiving retirement pension from the Social Insurance Board and/or Pillar II payments from the Pension Center, don't forget to change your application to your employer.

Pension indexation and income tax

Every year in April, pensions are indexed and thus pensions increase.

If you are of retirement age, you do not work and the pension is all your income, you do not need to do anything. The maximum income tax exemption is calculated from your pension.

Since the tax-free income is calculated first from the pension, as the pension increases, you must review your tax-free income statement to the employer. If your pension rises above 776 euros, you can no longer count tax-free income from your salary.

Use of tax-free income from pension when living abroad

Residents of Estonia and residents of the European Economic Area (members of the European Union, Norway, Iceland, Liechtenstein) who receive income from Estonia have the right to use tax-free income.

A resident of the European Economic Area must submit a residence certificate to the Tax and Customs Board or the Social Security Board once a year. Only if there is a certificate is the right to apply tax-free income.

Residents of third countries are not entitled to general tax-free income and tax-free income in old-age pension.