Over the past two years, the group of people who pay no personal income tax (szja) at all has grown considerably: in addition to the allowance for young people under 25, the income tax exemption for mothers raising three children has applied since October 2025 and – phased in by age group – the exemption for mothers raising two children since January 2026. At the same time, many people keep paying their pension insurance premium in the belief that “the 20% will come anyway”. As a broker, I see this as the most common misunderstanding about the tax credit: the credit is neither a gift from the insurer nor a separate state subsidy, but a designation of your own tax that is actually payable. If there is no tax, there is nothing to designate. This article shows exactly what the rule is, whom it affects and how, and what is worth doing with the policy.
- The tax credit is not a subsidy but a designation of your own personal income tax remaining after allowances – where tax-base allowances bring the tax down to zero, there is nothing from which 20% can be credited.
- The allowances for under-25s, for mothers under 30 and for mothers of two, three and four children typically exempt income earned from work; tax on other income falling into the consolidated tax base can still serve as a basis.
- The policy works without the credit too: the solution is not cancellation but rethinking the premium or choosing who in the family should be the policyholder – in consultation with your accountant.
Where does the 20% come from? The logic of the designation
Under Section 44/C of Act CXVII of 1995 on Personal Income Tax (Szja tv.), a private individual may designate 20% of the amount paid as policyholder into a pension insurance policy in the tax year, up to a maximum of HUF 130,000 a year – specifically from the part of the tax on the consolidated tax base that remains after allowances have been deducted. NAV (the Hungarian tax authority) transfers this amount not to you but to the insurer, which credits it to the policy. Under Section 44/D, the joint annual ceiling for pension insurance, voluntary pension funds and the NYESZ (pension pre-savings account) together is HUF 280,000. The details of the mechanism are described in the article on how it works; here the essence fits into a single sentence: the source of the designation is your own personal income tax after allowances. It is also important that only tax on the consolidated tax base can be used – tax on separately taxed income (interest, dividends, capital gains, sale of property) is not a basis for the designation.
Who ends up with nothing to redirect?
According to NAV's January 2026 guidance, tax-base allowances apply in 2026 in the following order: the allowance for mothers under 30; the allowance for mothers raising two, three, or four or more children; the CSED–GYED allowance (on infant care fee and childcare fee); the allowance for young people under 25; the personal allowance (for people with a severe disability); the first-marriage allowance; and finally the family allowance. If any of these brings your tax base down to zero, the tax after allowances in your return will be zero – and the pension insurance declaration can then trigger a transfer of zero forints, even though you paid the premium all year. Typical cases: a career starter under 25 earning less than HUF 715,765 a month (in 2026, income from work is tax-exempt up to this limit); a mother under 30; a mother raising three or more children; from 2026, a mother under 40 raising two children; and a family with two children on an average income, where the family allowance alone absorbs the personal income tax. The same applies to a KATA entrepreneur (fixed-rate small business tax), whose revenue under KATA generates no consolidated tax base – this is covered in detail in the article for entrepreneurs.
When there is some income tax after all: partial cases
The picture is rarely black and white. The under-25 allowance is capped: personal income tax remains payable on the part of income above HUF 715,765 a month, and this can already serve as a basis for the designation – according to NAV's guidance, the allowance is worth at most HUF 107,365 a month in tax. The mothers' allowances, by contrast, have no upper limit on the amount but apply to specific types of income – typically income earned from work; if someone also has other income that falls into the consolidated tax base but outside the scope of the allowance, the tax on that income may be usable; whether a given income falls under the allowance is something NAV's guidance and your accountant can tell you. It also matters that the allowance applies only to the months of eligibility: if you turn 25 during the year, personal income tax arises in the remaining months of that year, and that year's designation can be met from it. Finally, with the family allowance, because part of it can also be claimed against contributions, the personal income tax actually remaining in the return differs from family to family – only your own draft return or your accountant can tell you this, and it is not worth trying to estimate it in advance.
What should happen to the policy?
First and most importantly: not receiving the credit is no reason to terminate the policy. Pension insurance is first and foremost a form of saving, and the credit is only an extra; if, however, you surrender the policy early, you must repay the credits received earlier, increased by 20%, under Section 44/C(8) of the Szja tv., and the gain is taxed. The second step is sizing: if you have so far set the premium to match an annual payment of HUF 650,000 solely to use up the ceiling, it is now worth returning to the principle of “comfortable even in a bad month”. The third option is the division of roles within the family: the right to designate belongs to the policyholder, so if your spouse or partner pays personal income tax, they can be the policyholder while you remain the insured person – the framework for this is set out in the article on family policies. A change of policyholder is not in itself an event that triggers repayment, but from then on the credit depends on the new policyholder's tax situation. Fourth: think through how long the exemption will last. The under-25 allowance runs out, whereas the allowances for mothers of two and of three children are lasting – in the latter case it is worth building the pension plan so that the credit does not feature in it at all. The particular features of the years with young children are discussed in the article on pension goals while receiving GYED or GYES (childcare benefits).
What should you do now?
- Check in your latest draft tax return how much personal income tax remained payable after allowances – this is the real limit of the designation, not 20% of the premium paid.
- If the amount is zero or low, ask your accountant whether you have any income in the consolidated tax base whose tax can be used – you will find the list of questions in the article on questions for your accountant.
- Decide on the premium based on your own budget, not on the ceiling; a premium reduction or a structure built on top-up payments is available in most policies.
- If someone else in the family pays personal income tax, it is worth considering whether handing over the policyholder role suits your situation – if you let me know, I prepare the paperwork with the insurer; the declarations must be signed by you.
As a broker, I can help with structuring the policy and with the comparison; your tax situation should be confirmed with your accountant or against NAV's guidance, because the limit of the designation is determined in your tax return each year.
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Sources
- Personal Income Tax Act (Szja tv.) Sections 44/C–44/D (Act CXVII of 1995)
- NAV information booklet No. 73: Personal income tax base allowances (22 January 2026)
- Önadózó: Designating tax on pension insurance premiums (2024)
- Piac&Profit – FBAMSZ (association of independent insurance brokers): the tax refund must be claimed (May 2026)
