Government Implements New Income Tax Tables, Increasing Monthly Take-Home Pay
The Portuguese government has rolled out new income tax (Imposto sobre o Rendimento das Pessoas Singulares - IRS) withholding tables, resulting in a net increase in the monthly income for workers and pensioners. The measure, which provides a more noticeable financial relief in the months of August and September due to the inclusion of retroactive payments, is part of a broader fiscal policy aimed at reducing the tax burden on households. The policy announcement confirms a widespread reduction across the progressive tax brackets, a move that will affect nearly all taxpayers in the country. The objective of the policy is to increase the disposable income available to families, thereby stimulating consumption and economic activity.
Under the new structure, tax rates have been lowered for the first eight income brackets. The rate for the first bracket has been reduced from 13% to 12.5%, the second from 16.5% to 16%, and the third from 22% to 21.5%. Further reductions continue up to the eighth bracket, which sees its rate fall from 45% to 44.6%. The ninth and final income bracket remains unchanged at 48%. However, due to the progressive design of the IRS system, the rate reductions in the lower and middle brackets will lead to an overall tax decrease for all taxpayers, as every taxpayer benefits from the rates applied to the income levels below their own. The Ministry of Finance has emphasized that this structural change is designed to provide broad-based tax relief.
To clarify the impact, the Ministry of Finance released several simulations. According to one scenario, a married couple with two children, where both partners earn a gross monthly salary of €1,500, will experience an annual tax reduction of €165 compared to the previous tax regime. For a couple without dependents, the annual savings can range from €67, for those earning €1,000 each per month, up to €414 for those earning €3,000 each. Pensioners are also included in the relief measures. A single pensioner with no dependents will see an annual tax saving of between €34 (on a €1,000 pension) and €207 (on a €3,000 pension). These figures illustrate the government's targeted approach to providing financial relief across different demographic and income groups.
The implementation strategy involves applying these new tables to salaries and pensions paid from August onwards. The retroactive nature of the initial payments is intended to ensure that taxpayers feel the full benefit of the annual reduction promptly. This policy initiative has been a subject of political discussion, with the governing party framing it as a fulfillment of its commitment to ease the financial pressures on Portuguese families. Independent analysis from consulting firms like PwC has corroborated the government's projections, with one of their simulations showing that a single worker without children earning €1,000 per month will pay €34 less in annual taxes. The policy is expected to be a key component of the government's economic narrative as it prepares for future budgets and economic forecasts.
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