What Will Change from 2026?

The Rahandusministeerium has submitted amendments to the Income Tax Act for consultation, according to which a uniform tax-free income of 700 euros per month will apply from 2026.

This means the current complex and unclear system will be eliminated, making tax calculations significantly simpler.

The Minister of Finance has explained that a system initially presented as equal for everyone gradually turned into a tax increase for a growing number of taxpayers. Abolishing the tax “hump” will provide real relief, but due to the difficult state budget situation, its implementation was postponed by one year.

Why Was the Abolition Postponed?

The main reason for the delay is the condition of the state budget. Without these measures, the budget deficit would have exceeded the 3% limit allowed by the Euroopa Liit.

As a result, the government agreed on several measures, including:

postponing the abolition of the tax “hump”;

additional tax increases;

spending cuts and savings in the public sector.

These steps were necessary to maintain budget balance, although for taxpayers this meant waiting until 2026 for relief.

How Does the Tax-Free Income System Work Now?

Under the current system, tax-free income:

applies in full (654 euros per month) with gross monthly income up to 1200 euros;

gradually decreases starting from 1200 euros;

disappears entirely at a monthly income of 2100 euros.

This step-based and complex calculation has been the main source of confusion and uncertainty regarding net income.

What Will the New System Look Like from 2026?

In 2023, the Riigikogu decided to abolish the tax “hump,” meaning that:

a uniform tax-free income of 700 euros per month will apply;

annual tax-free income will amount to 8,400 euros;

the system will become clearer and more predictable;

a separate tax-free allowance will remain for old-age pensioners.

What Does This Mean for People’s Finances?

Although abolishing the tax “hump” will bring greater certainty and transparency in the long term, many families and entrepreneurs will still need to plan their finances carefully in 2025. A changing tax environment, rising prices, and uncertainty may create situations where additional financing is required.

Flexible Solutions from Laen.ee

If incomes fluctuate or unexpected expenses need to be covered, Laen.ee offers a range of financial solutions:

Cunsomer loans — for everyday or larger expenses.

Line of credit — for flexible use whenever needed.

Refinancing — to consolidate obligations into a single payment.

Business loans and line of credit — for entrepreneurs who need to plan taxes and expenses in advance.

Timely decisions help keep cash flow under control even in changing economic conditions.

Learn more about Laen.ee’s options: www.laen.ee