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Frequently asked about income tax changes regarding benefits and pensions

Income taxation of benefits and pensions in general

 

Procedures for income taxation of benefits and pensions.

 

Applying for tax exemption

 

 

Income taxation of benefits and pensions in general

Does the 500€ tax-free amount also include the tax-exemption for old-age pension.

Beginning from January 1st 2018 the overall tax-free amount (basic exemption) of up to 6000 euros per year or up to 500 euros per month will be applied to all types of income and the increased basic exemption in event of pensions and compensation for accident at work will not be applied in the future. This means that the tax-free amount will still be 500 euros to those receiving an old-age pension if their average monthly income is up to 1200 euros.

If my pension is 388 euros, do I have to submit an application to the Tax Board?

You do not have to submit an application to the Tax Board. The Social Insurance Board will calculate your tax-free amount.

My pension is 501 euros. Will I have to pay taxes on it? What to do to keep my pension exempt from taxes.

In comparison to previous year, your tax-free amount will rise from 416 euros to 500 euros, meaning that instead of the former 84 euros only 1 euro will be taxable. If you have no other income within the year, your annual income will be 6012 euros and the applied tax-free amount 6000 euros. So for a full year only 12 euros will be taxed with income tax.

I receive a survivor's pension on behalf of my child. Is this considered as my pension (together with salary) or as my child's income?  

Survivor's pension is the child's income and will not be included in your total earnings.

I receive a pension for incapacity for work for the amount of 175 euros, is there anything I have to do?

If you are receiving pension for incapacity for work only from the Social Insurance Board and receive no payments from other enterprises, this will be considered to be your tax-free income to which the Social Insurance Board will apply the basic exemption upon making a payment, in which case there are no additional steps required from you.

If I am receiving a foreign pension and an Estonian pension for a total sum of 1000 euros, what is the amount of my basic exemption?

If the total amount of your foreign pension and Estonian pension is 1000 euros per month, your annual income will be 12,000 euros, means the basic exemption of 6000 euros per year will be applied.  In regards to foreign income, your final tax liability will become evident from an income tax return.

Will the income of an Estonian old-age pensioner be affected by benefits received in Finland? Will they be included in their income in Estonia?

In regards to foreign income, your final tax liability will become evident from an income tax return..

When submitting an application, from which monthly pension amount would it be reasonable to assume that income tax will be automatically deducted from the payment, in order to avoid the obligation to pay additional income tax to the State in the following year?

Total income, which a person must take into account when filling out an application for tax exemption, is divided as follows:

  • total monthly income in the amount under 1200 euros, basic exemption of 500 euros per month
  • total monthly income in the amount between 1201-2099 euros, basic exemption of 499-1-euros per month according to a linear formula (monthly formula: 500-(500/900)*(total earnings-1200)
  • total monthly income in the amount of 2100 euros and more, no right for basic exemption, income taxable with income tax will be taxed from the first euro

Are payments from the second pension pillar taxable with income tax?

Yes, payments from the second pension pillar will be taxable with income tax. This means that such payments will be included in the income taxed with income tax.

Does a pensioner receiving a pension from the first and third pillar (fixed-term payments taxed with 10% income tax rate), whose income from both pillars is under 1200 euros per month and from whose payments from the first pillar basic exemption has been deducted at a maximum rate, has to submit an income tax return?

If your income from both pillars is under 1200 euros and the basic exemption has been used at its maximum rate of 500 euros, the monthly tax calculation is correct and there is no need to submit an income tax return.

Are work ability allowance, social benefit for disabled persons and state compensation of victims of crime taxable with income tax?

Social benefit for disabled persons and state compensation of victims of crime paid by the Social Insurance Board and work ability allowance paid by Eesti Töötukassa are not taxable with income tax and will not be included in a person's annual income.

Are Estonian Lottery awards taxable with income tax?

Estonian Lottery awards are exempt from income tax.

Is compensation for damage paid by an insurance company included in the annual income?

No, they will not be reflected in the income tax return as annual income neither included in the total income taxable with income tax. 

Will alimony payments made by father to mother be considered as income?

No. They will not be reflected in the income tax return as annual income neither included in the total income taxable with income tax.

Also, maintenance allowance paid by the Social Insurance Board is not taxable with income tax.

Can one deduct losses suffered due to holding of shares/bonds from the annual pension income when declaring said income?

Shares as dividend income are taxable with income tax and therefore will be included in the total income taxable with income tax. Therefore, a person must take such income into account when calculating their total income, in order to correctly determine the amount of basic exemption they are entitled to.

More information about different types of income taxable with income tax is available from Estonian Tax and Customs Board fyysisik@emta.ee, 880 0811. 

 

 

Procedures for income taxation of benefits and pensions.

Can a working pensioner still submit two applications, one to the Social Insurance Board and one to their employer, or can they now have only one?

A working pensioner can use their basic exemption for two incomes – pension, salary.

In order to use their basic exemption, a working pensioner must decide whether to submit an application for tax exemption to:
  • the Social Insurance Board
  • their employer, or
  • the Social Insurance Board and their employer

EXAMPLE:

2017

2018

  • The pension granted to a person is 200 euros
  • The salary of the person is 300 euros
  • Currently, a basic exemption in the amount of 236 euros per month is applied to the pension (without an additional application)
  • A basic exemption in the amount of 180 euros per month is applied to their salary on the basis of their application
  • The pension paid to the person is 200 euros per month
  • The salary paid to the person is 276 euros per month (300-24(300-180)*20%)

 

The person's income for the current month is 476 euros per month

  • The pension granted to a person is 200 euros
  • The salary of the person is 300 euros
  • On the grounds of the person's application, a basic exemption in the amount of 200 euros per month is applied to their pension
  • On the grounds of the person's application, a basic exemption in the amount of 300 euros per month is applied to their salary
  • The pension paid to the person is 200 euros per month
  • The salary paid to the person is 300 euros per month

 

The person's income for the current month is 500 euros per month. The person can use the maximum amount of basic exemption in the current year.

If the sum of my pension and salary exceeds 2100 euros, what kind of basic exemption am I entitled to?

Working pensioners whose total monthly income (pension, salary, holiday pay, additional one-time fees) is 2100 euros or more will lose their right to use basic exemption from 01.01.2018, meaning that their pension and salary will be decreased in comparison to current date.

The reason for this is the fact that currently most working pensioners use a basic exemption in the amount of 180 euros per month for their salary and 236 euros per month for their pension.

From 01.01.2018 they will no longer be entitled to such tax exemption, meaning their income will be taxed from the first euro.

Example: a working pensioner whose total income is 2100 euros per month. Their granted pension is 500 euros per month and salary 1600 euros per month. 

 

Granted pension/gross monthly earnings

2017

2018

Granted monthly pension

500

500

Increased basic exemption in event of pension (without additional application)

236

0

Monthly pension payment

447,2

400 (-47 euros less)

 

 

 

Gross earnings

1600

1600

Increased basic exemption per month (on the grounds of an application)

180

0

Monthly salary payment

 

1316

1280 (-36 euros less)

Total monthly payment

1763,2

1680 (-83 euros less)

 

The example does not include funded pension and unemployment insurance premium

Do I understand correctly that if a working pensioner writes an application for tax exemption at their job, they do not have to separately contact the Pension Board?

First, you should add up your sources of income, this includes your salary and pension, in order to determine which amount of basic exemption you are entitled to. If you can use the full amount of basic exemption with your salary, you do not need to submit an additional application to the Social Insurance Board. If your salary is lower than the amount of basic exemption you can submit an application to the Social Insurance Board, requesting them to apply the remaining part of the basic exemption.


I am a working pensioner. I receive a monthly salary in the amount of 881.63 euros and a pension in the amount of 407.43 euros to my bank account. The total is 1289.06 euros. What should I do next, to whom and if I have to submit an application?

When calculating your annual income you must take into account the gross income, this means the sums before withholding the income tax. Therefore, you cannot use the sums received to your account when calculating the basic exemption. You need to know your gross earnings and granted pension.

Can a working pensioner request a basic exemption from their pension of 200 euros and salary of 300 euros?

Yes, a working pensioner can submit an application for tax exemption both to the Social Insurance Board and their employer. On both applications they must specify the amount of basic exemption they wish to use. The total sum of basic exemption specified in two applications cannot exceed 500 euros.


My gross pension is currently 448 euros; my gross earnings are between 800-1000 euros. What should I do?

As your salary is variable, it would be the safest to apply the basic exemption to your pension in a smaller amount of 300 euros. This way you wouldn't have to pay additional income tax on the grounds of an income tax return. At the same time, if you have overpaid income tax during the year you will be refunded the overpaid income tax on the grounds of your income tax return.


Does a working pensioner have to submit two applications (to their employer and the Social Insurance Board)? Even if their total annual income won't exceed 6000 euros? If they do not submit an application for tax exemption, will the overpaid income tax be refunded to their heirs in case of the pensioner passes away before the due date for the repayment of income tax? 

If the pension and salary of the working pensioner are both under 500 euros per month, they can submit two applications. It is important that their income would not exceed 1200 euros per month. If they do not submit an application, their heirs have the right to submit an income tax return and the overpaid income tax will be refunded to the heirs.

 

 

Applying for tax exemption


Can the application be drawn up in free format or is there an official form?

Yes, the application can be darn up in free format but you can also use the form on our webpage. There are two forms, depending on what a person wants to do – an application for tax exemption (14.81 KB, DOCX) and an application for foregoing the basic exemption (14.52 KB, DOCX).

You can also fill out an application in the eesti.ee portal.

In eesti.ee portal you must take the following steps:

HomepageE-servicesFor a citizenBenefits and Social Assistance → Application for exemption from income tax.  

How can a person find out if they have submitted an application for tax exemption? It is probably easy to do via the Internet but many older persons don't use the Internet – what are their options? 

The person can check if they have submitted an application for tax exemption via the eesti.ee portal. In addition, such information can be received from the Social Insurance Board by either contacting us by e-mail tulumaks@sotsiaalkindlustusamet.ee, info@sotsiaalkindlustusamet.ee or calling the income tax information line 6610551 (Mon-Fri between 9-17

How can I find out that the new application I have submitted has been approved by its recipient?

Applications will be taken into account in a manner that every new application for tax exemption cancels the former. Therefore, if a person submits an application to us before the 20th date, we will apply it from the following month, if later, it will be applied from the month after next. 

Applicants will not be informed individually of the approval of their applications.
You can check if the basic exemption is being applied to your pension, parental benefit or compensation for damage in the eesti.ee portal 
Homepage → E-services → For a citizen → Benefits and Social Assistance → Application for exemption from income tax.  

What is the deadline for submitting an application?
If a person has not submitted an application for tax exemption yet or wish to submit a new application and wants us to apply it to payments made in January 2020, they must submit the application to us for December 20th 2019.
 

Does a digital application have to be digitally signed and has it been taken into account when setting the deadline for submitting applications that ID-card certificates required for signing have been cancelled?
When speaking of digital applications, it would be good if it was signed. If a person cannot sign the application, they can send us an unsigned digital application. In such a case we will contact the person for further steps for identification.
 

If someone won't be able to submit an application and their pension will be taxed from the first euro, is there a way for them to be refunded the overpaid income tax?

If the basic exemption has not been applied when withholding income tax or it has only been used partially, a person will be refunded the overpaid income tax on the basis of an income tax return. This means that in 2019 the person must submit an income tax return to the Tax and Customs Board in order to be refunded the overpaid income tax.