From the benefits paid by the Social Insurance Board, income tax is calculated from pensions, damage compensation and parental benefits. Child leave and leave for a disabled child are also subject to income tax, but they do not count as tax-free income. The rest of the benefits and allowances are tax-free
For a person of working age, the amount of tax exemption depends on how big is the person's annual income. A person can choose income to be exempted from income tax. Tax-free income is automatically calculated from the pension for those who are of old-age pension age or will reach it during the calendar year.
Calculation of basic exemption
To calculate the basic exemption, you need to know the range of your annual income.
Annual income includes
- salary and service fee
- holiday pay
- sickness benefit
- parental benefits
- damage compensation
- rental income
- dividends and other benefits
You can get more information from the website of the Tax and Customs Board. The gross amount (i.e. the amount before taxes are deducted) is considered as the amount of income.
Annual income does not include
social allowances, compensations, benefits, scholarships and grants exempt from tax, payments from mandatory funded pension (II pillar) and supplementary funded pension (III pillar) exempt from tax.
The amount of tax exemption is divided into three groups:
- If your income is up to 1200 eur per month (annual income up to 14 400 euros), you can use 7848 euros as annual basic exemption or 654 euros per month,
- If your income is between 1200 and 2100 eur per month (annual income increases from 14 400 euros to 25 200 euros), basic exemption decreases according to the following formula per year: 7848 – 7848 ÷ 10 800 × (income amount – 14 400), per month: 654 – 654 / 900 * (income amount – 1200).
- if your annual income is above 25 200 euros, basic exemption is 0.
The total monthly tax exemption can be a maximum of 654 euros per month (if the total monthly income is less than 1200 euros (gross))
Please note that if you have not taken into account some additional income when determining your income tax exemption (e.g. income from renting out an apartment or a bonus), the tax exemption calculated during the year may be too large. In this case, the obligation to pay additional income tax may arises.
You can change the amount of your income tax exemption every month.
If you receive an unexpectedly higher income during the year, you can reduce your income tax exemption rate in the future. This way you avoid or reduce the possible need for additional payment.
You can apply for income tax exemption for benefits paid by the Social Insurance Board in our self-service.
Application for tax-free income working-age people
According to your wish, you can submit an application for tax-free income to the employer, the Social Insurance Board or both.
- If you want the tax exemption to be applied to both compensation and salary, you must submit a tax-free income statement in a fixed amount to both the Social Insurance Board and the employer. The total amount of applications cannot exceed 654 euros.
- If the tax exemption is applied only to compensation, then the salary is subject to income taxation from the first euro.
- If the tax exemption is applied only at the employer, then the compensation is subject to income taxation from the first euro.
Compensation can be parental compensation, damage compensation or a pension if you are a pension recipient but do not reach old-age pension age within the calendar year.
NB! Each person must ensure that his monthly tax exemption does not exceed the prescribed amount. We cannot check whether a person also uses the tax exemption with his employer.
What to remember
- Think about what your expected annual income will be. Including monthly income (e.g. salary, parental allowance, rental income, etc.) and also expected other income (e.g. profit from the sale of real estate, profit from the sale of securities, etc.).
- Based on the expected annual income, decide what amount you want to use the tax exemption on a monthly basis and submit an application for this to the person paying you the income (for example, the employer or the Social Insurance Board).
- If the amount of income is very fluctuating and/or unpredictable, it is reasonable not to consider tax-free income at all during the year. If, retrospectively, the right to an income tax exemption arises based on the annual income, it can be refunded on the basis of the income tax return.
- Keep your e-mail address in the MTA and the Social Insurance Board's self-service up to date so that we can send a notification about the fulfillment of tax-free income in the middle of the year.
From January 1, 2024, a separate tax-free income of 776 euros applies to people who have reached the old-age pension age, which means that the average pension is income tax-free. The amount of the average old-age pension is established by the state budget law for the fiscal year. In 2024, it will be 776 euros.
If you reach the old-age pension age during 2024, 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.
The calculation of the income tax on the state pension, or pillar I, and the mandatory accumulated pension, or pillar II, pension payments are done together. If the I pillar pension is smaller than the average old-age pension and you also receive regular 10% income tax-taxable payouts from the II pillar, the Social Insurance Board first calculates the tax-free income from your I pillar pension and transfers the unused part of the tax-free income to the Pension Center, which calculates it from the II pillar payouts.
- 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 (654 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.
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 during 2024, you will receive a tax-free income of 776 euros from the beginning of the calendar year, i.e. from January 1. This means that the employer can count tax-free income in the amount of 776 euros on your salary from January 1, even though you will reach the old-age pension age only within a year (e.g. in July). For this purpose, an application for the use of tax-free income must be submitted to the employer.
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.
Benefits paid by the Social Insurance Board that are exempt from taxation with income tax:
- benefit for pensioners living alone
- family allowances (including child allowance, child care allowance, childbirth allowance, single parent's child allowance, allowance for families with many children, conscript's or person's in alternative service child allowance, guardianship or curatorship allowance, adoption allowance, start in independent life allowance)
- compensation for additional costs related to compensation for damages (including prosthetic appliances, medical devices, prescription medicinal products, rehabilitation, travel costs to a medical institution, care expenses)
- maintenance allowance (including maintenance allowance during court and execution proceedings)
- social services for disabled persons (including disabled child allowance, disability allowance for a person of working age, disability allowance for a person of retirement age, disabled parent's allowance, education allowance, in-service training allowance)
- repressed person's allowance
- state support for winners of the Olympic Games
- returnee allowance
- state compensations paid for victims of crime
- social rehabilitation services (including travel expenses benefit, special care service, technical aid)
compensation for psychological assistance costs (victim support)
Application for basic exemption
Tax-free income statements can be submitted to the Social Insurance Board for the benefits that we pay and from which income tax is calculated: pension, parental benefit and damage compensation. (The Social Insurance Board does not accept statements of tax-free income from wages - please contact the employer with this statement).
The application can be submitted to us in self-service and by post (Paldiski mnt 80, 15092 Tallinn) and e-mail ([email protected]). You can also bring the application to our customer services across Estonia. To do this, you can fill out a form or send a free form application.
In the application you must request the withholder of income tax to
- apply basic exemption or
- not to apply basic exemption or
- apply basic exemption in the amount of a specific sum, for example 100 euros per month.
A person of retirement age does not need to submit a tax-free income statement for pension.
An application will be applied from the following month after submission.
Last updated: 19.02.2024