The employer must submit an application to the Unemployment Insurance Fund and the following conditions have to be met in order to receive the social tax incentive:

• the employer is a company, non-profit association, foundation or self-employed person;
• the employee’s work ability is reduced (partial or no work ability, or at least 40 percent permanent incapacity for work has been established for the employee);
• the employee works for the employer on the basis of an employment contract (the state does not pay social tax for a person with reduced work ability receiving remuneration on the basis of a contract for services, authorisation agreement or other contract under the law of obligations).

The application for social tax reimbursement submitted by the employer must indicate the first name and surname of the employee with reduced work ability, their personal identification number, date of beginning of the employment relationship, and confirmation that the employer takes into account the tax exempt income when withholding income tax, or if the employee has not submitted a statement for calculating the exempt income to any employer, they have granted the employer the right to apply for the social tax incentive on their behalf via a written declaration.

The date of submission of the application to the Estonian Unemployment Insurance Fund, which cannot be earlier than the date of commencement of employment, or the date of identification of the employee’s reduced work ability is deemed to be the date of the obligation to pay state social tax. The application cannot be submitted retroactively.

Example. The employer submits an application for payment of the social tax on 10 August, while the employment contract concluded with the person with reduced work ability started on 1 July. The Unemployment Insurance Fund begins to pay social tax for the employee from 10 August, i.e., the day of submission of the application.

The state pays social tax for an employee with reduced work ability through the Estonian Unemployment Insurance Fund at the monthly rate established for this purpose 20% (145 euros from 725 euros in 2024; 164 euros from 820 euros in 2025). The employer pays social tax for an employee with reduced work ability on the part that exceeds the monthly rate on which the social tax paid by the Estonian Unemployment Insurance Fund is calculated. If the employee’s actual wage is less than the monthly rate (e.g., a person works part-time), the Estonian Unemployment Insurance Fund will still pay their social tax on a monthly basis.

If an employee with reduced work ability has an employment relationship with several employers, the state pays social tax for the employer who takes tax-free income into account when deducting income tax from the employee’s wages. If the employee has not submitted an application for calculation of tax-free income to any employer, the employee selects one employer for whom the state pays social tax by means of a written application.

Example. An employee with a reduced work ability has an employment relationship with employers A and B.

Since the employee has not submitted an application for calculating tax-free income to any of the employers, they must choose one employer for whom the state will pay social tax.

The employee chooses employer A as the employer for whom the state will pay social tax. To do this, the employee must submit a signed (digital) application of A to the employer stating: ‘I have chosen employer A as the employer who has the right to apply for the social security incentive from the Estonian Unemployment Insurance Fund on my behalf.’

The right to payment of social tax by the state is verified every month, and the Estonian Unemployment Insurance Fund pays social tax for an eligible employee for the period indicated on the decision. If the fact underlying the payment of social tax lapses (e.g., the period of reduced work ability ends), the Unemployment Insurance Fund will also stop paying the social tax.

The Estonian Unemployment Insurance Fund transfers social tax for an employee with reduced work ability to the account of the Estonian Tax and Customs Board no later than by the 10th day of the month following the reporting month.

The employer declares social tax for an employee with reduced work ability in Annex 1 of the TSD. More information about declaration is available on the website of the Estonian Tax and Customs Board.

The application can be submitted:

in e-töötukassa;

digitally signed, by e-mail at sm.erijuhud@tootukassa.ee;

or submitted in person at the regional department of the Estonian Unemployment Insurance Fund; or

by post, to the address Lõõtsa 2a, 11415 Tallinn.