Annika Goroško gives advice: how to really benefit from the money freed up after the abolition of the tax ‘hump’?
12. january 2026The tax change that came into force at the beginning of the year, i.e. the abolition of the so-called tax ‘hump’, brought many Estonians up to EUR 154 in extra money per month. Annika Goroško, the Head of Retail Banking at LHV, emphasises that its impact depends primarily on whether the additional income is consciously channelled or unnoticeably dispersed into everyday expenses.
From 2026, the same tax-free allowance applies to everyone: EUR 700 per month, i.e. EUR 8,400 per year. ‘From now on, the annual income of all people from EUR 8,401 will be taxed at a 22 per cent income tax. If you take into account the maximum tax-free allowance and the two per cent contribution to the second pension pillar, this can mean up to EUR 154 euros more in net salary per month,’ Goroško explains. To estimate your exact net income, she recommends using reliable salary calculators and being careful when entering personal data.
An important choice is also whether the tax-free allowance is accounted for on a monthly basis or is refunded with an income tax return. ‘Both options are still possible under the new system, and the most suitable solution depends on the structure of a person’s income,’ Goroško says. However, it is worth remembering that the tax-free allowance can only be used once, and having multiple sources of income may result in the need to pay additional income tax.
For those planning on taking a bank loan, it is important to know that loan decisions are based on regular monthly net income. ‘The income tax refund received once a year is not permanent income and is therefore not taken into account in the loan assessment,’ Goroško notes.
Small expenses should not consume the extra income
Goroško recommends using this opportunity to review monthly expenses and service providers. ‘Small price increases, a few euros here and there, can have a significant impact on the budget in the long run. Therefore, it is worth periodically reviewing telecom, energy, and banking services as well.’
Although Estonians tend to be very loyal to their home bank, keeping an eye on competition can bring financial benefits. ‘It is worth assessing whether your current bank offers the best terms for daily services, deposits and investments, as well as loans and cards. Savings can come both from service fees and refinancing loans.’
Savings and a financial buffer provide reassurance
The additional income can be a good opportunity to strengthen your financial foundation. ‘If a person has higher-interest consumer loans or hire-purchase, it is worth considering paying them off more quickly. It is also very important to have an emergency fund, it protects against unexpected expenses and reduces stress associated with money,’ Goroško explains.
Automation helps make saving consistent. For example, by rounding up card payments or setting up a standing order to a savings account on payday. We see that this way, a surprisingly large amount can accumulate each month. It is also important to define a goal – whether it is an emergency fund, a trip, a home down payment or long-term investing.
Used wisely, the additional income resulting from the abolition of the tax ‘hump’ can significantly improve a person’s sense of financial security. Small but consistent steps, such as paying yourself first via a standing order, directing money into pension savings or reducing loan burdens, will yield a greater result in the long run than any impulse decision. ‘There are always a lot of everyday expenses and needs, and we often tend to postpone acting for the future. Even the slogan ‘you only live once’ certainly sounds more tempting than ‘think about your pension’,’ Goroško notes. But if we really do only live once, do we want to spend that life worrying about money? Probably not.
