An initiative to alleviate income tax on this year’s earnings aligns with the initial government proposal already approved in a specialty session on July 10 by the Budget, Finance, and Public Administration Committee.
The final text enshrines a reduction in rates from the 1st to the 8th bracket in 2025, providing tax relief of approximately 500 million euros, and foresees a further rate reduction from the 2nd to the 5th bracket by 2026, to be approved in the 2026 State Budget.
During the specialty vote, the proposed reform for the 2025 table received favorable votes from the PSD, CDS-PP, Chega, and IL, an abstention from PS, and a vote against by Livre.
Despite receiving approval in the financial committee, the PSD and CDS-PP requested that the final version of the text be voted on in today’s plenary session.
This text version includes a second norm introduced by the Social Democratic and Centrist benches, committing the government of Luís Montenegro to propose to parliament an “additional reduction” in income tax for earnings in the following year.
According to this second norm, the executive proposes in the 2026 State Budget to further reduce by 0.3 percentage points the marginal rates from the 2nd to the 5th income brackets.
The additional rate reduction for 2026 was also approved in a specialty session, with favorable votes from PSD, CDS-PP, and Chega. PS and IL abstained, and Livre voted against. On that day, members of PCP, BE, and PAN, although part of the committee, were not present and did not vote on any assessed initiatives, as the Assembly of the Republic’s plenary was simultaneously underway.
Concerning the 2025 income tax, the table’s reformulation will lead to rate reductions: by 0.5 percentage points for the 1st to 3rd brackets, by 0.6 points for the 4th to 6th brackets, and by 0.4 points for the 7th to 8th brackets.
With these changes, the 1st tier rate decreases from 13% to 12.5%, the 2nd from 16.5% to 16%, the 3rd from 22% to 21.5%, the 4th from 25% to 24.4%, the 5th from 32% to 31.4%, and the 6th reduces from 35.5% to 34.9%. The 7th tier decreases from 43.5% to 43.1%, and the 8th from 45% to 44.6%.
The rate for the 9th income tier remains at 48%. However, due to the progressive nature of income tax—applying the rate of each bracket to the respective income fraction—taxpayers in the 9th bracket will also experience a tax reduction thanks to the rate decreases in the lower tiers.
For 2026, the revised income tax table introduces an additional 0.3 percentage point reduction from the 2nd to 5th brackets compared to the current table setup.
Today’s plenary session will also vote in specialty on a PS proposal, previously rejected in the Budget Committee, to include in law that the salary bonus granted to young workers is cumulative with the Young IRS.
The initiative was rejected by PSD, CDS-PP, and Chega, but the PS bench requested that the proposal be revisited in plenary voting.
PS seeks to ensure legally that a young worker up to 35 years old can benefit from the Young IRS while simultaneously continuing to request the payroll bonus from the Tax and Customs Authority, representing a tuition refund as recognition of completing a bachelor’s or master’s degree.
PSD views the PS proposal as a “futility,” arguing that the accessibility to the bonus “is in effect” and assuming it is cumulative with Young IRS might create an “interpretative doubt” that previously, both benefits could not be enjoyed simultaneously, stated PSD deputy Hugo Carneiro during the specialty debate on July 10.
