In today’s session of the Budget, Finance, and Public Administration Commission, the Socialist Party (PS) abstained and Livre voted against.
The commission also includes seats for the Communist Party (PCP), the Left Bloc (BE), and the People-Animals-Nature Party (PAN), but their deputies were not present. The vote coincided with a plenary session of the Assembly of the Republic.
The legislative proposal reduces the rates from the 1st to the 8th income brackets, offering a cross-cutting tax relief estimated by the government to be around 500 million euros.
Although rates decrease only up to the 8th bracket, taxpayers in the ninth bracket will also feel the reduction. This is due to the progressivity rule in tax calculation, where a taxpayer’s income is divided, and the respective rate is applied to each income level.
An amendment to the government’s proposal, submitted by the Social Democratic Party (PSD) and the CDS-PP, was also approved, ensuring that “in the State Budget for 2026, the government proposes to reduce the marginal rates from the 2nd to the 5th bracket by an additional 0.3 percentage points.”
This provision, put forward by the social-democratic and centrist benches, aimed to align with an initiative from Chega, which was later withdrawn, proposing the same additional reduction for the upcoming year.
The approved IRS reduction proposal applies to income earned by taxpayers throughout 2025. According to the government’s initiative, the rate for the first bracket will decrease from 13% to 12.5%, the second from 16.5% to 16%, the third from 22% to 21.5%, the fourth from 25% to 24.4%, the fifth from 32% to 31.4%, the sixth from 35.5% to 34.9%, the seventh from 43.5% to 43.1%, and the eighth from 45% to 44.6%. The rate for the highest income bracket remains at 48%.
Before the government modifies the withholding tax tables to reflect this reduction, the measure must pass a final overall vote in the Assembly of the Republic, be reviewed by the President of the Republic, and, if promulgated, be published in the Diário da República.
The government, through Finance Minister Joaquim Miranda Sarmento, has already indicated plans to adjust the withholding tax tables promptly following the proposal’s approval, to reflect the reduction retroactively from January of this year.
“If all goes well, by August and September with the so-called retroactives, and then from October, new tables that already monthly reflect the reduction,” he stated in Brussels on July 7, speaking to Portuguese journalists upon arrival at the Eurogroup meeting.
Joaquim Miranda Sarmento expressed his expectation that the proposal would be approved in the last vote of the current legislative session, allowing the executive to proceed with publishing the tables according to this schedule.
“Upon approval of the income tax rate reduction—the rates outlined in Article 68 of the IRS code—the government will immediately publish the withholding tax tables, allowing for what’s known in simpler terms as retroactives from January this year,” the minister stated.
Typically, when IRS rate brackets are altered, governments update the IRS withholding tables so that the monthly tax deduction from employee salaries and pensions more closely aligns with the final IRS payment.
