How salary is calculated in Latvia in 2026
Salary calculation starts from the gross salary — the figure stated in the employment contract. First, the employee's state social insurance contributions (VSAOI) of 10.5 % are withheld. Only then is income tax calculated.
The income tax base is the gross salary minus the VSAOI already withheld, minus the tax-free allowance and any dependant allowances. The income tax rate of 25.5 % applies to that base. If allowances exceed the income, the base is zero and no income tax is withheld — it never goes negative.
The net salary — the take-home amount — is gross minus VSAOI minus income tax. On top of the gross salary the employer also pays its own VSAOI share of 23.59 %, which never reaches the employee's account but forms the real cost of labour.
What changed compared to 2025
Two figures that directly affect every employee's pay changed in 2026:
- Minimum monthly wage: €740 → €780 for full-time work.
- Tax-free allowance: €510 → €550 per month.
Importantly, the tax-free allowance is applied in full regardless of salary level — provided the payroll tax book has been submitted to the employer. The former differentiated allowance, which shrank as salary grew, no longer applies, even though outdated calculators and articles are still easy to find online. Without a submitted tax book neither the tax-free allowance nor other allowances apply, and tax is calculated on the entire income.
The allowance for each dependant is €250 per month; for disability group I or II — €154; for group III — €120.
A note on the 33 % rate
Annual income above €105,300 is taxed at an increased income tax rate of 33 %. It is not used in the monthly payroll calculation — the employer withholds 25.5 %, and the difference is calculated and paid when the annual income declaration is filed. So if the gross salary exceeds €8,775 per month, this calculator shows the monthly withholding, not the final annual tax burden.
Frequently asked questions
How do you calculate net salary from gross in 2026?
The employee's VSAOI of 10.5 % is withheld from the gross salary first. The tax-free allowance and other allowances are then deducted from the remainder to get the income tax base, to which the 25.5 % rate applies. Net salary is gross minus VSAOI minus income tax. For example, from €2,000 gross with a submitted tax book and one dependant, the employee receives €1,537.55.
What is the tax-free allowance in 2026?
In 2026 the tax-free allowance is €550 per month, applied in full regardless of salary level, provided the payroll tax book has been submitted to the employer. There is no longer any gradual reduction based on income. Without a submitted tax book, neither the tax-free allowance nor other allowances apply at all.
How much does an employee cost the employer?
On top of the gross salary the employer pays VSAOI of 23.59 % of the gross. Total cost is the gross salary plus that contribution: at €780 gross it is €964.00; at €2,000 gross — €2,471.80. Out of every €100 of employer cost, an employee on an average salary takes home roughly €65.
When does the 33 % income tax rate apply?
The increased 33 % rate applies to the portion of annual income above €105,300, and it is calculated in the annual income declaration, not in the monthly payroll calculation. The employer withholds 25.5 % monthly. If the gross salary exceeds €8,775 per month, the calculator flags it — the difference will be payable once the declaration is filed.