“The approach has been to align the monthly amounts paid by taxpayers through withholding taxes with the total annual tax liability. This alignment is what these withholding tax tables continue to achieve: a closer match between the monthly withheld taxes and the final tax amount,” stated the government official in comments regarding the publication of the new tables.
In the order released today on the Finance Portal, the Secretary of State highlighted that the new withholding model, in effect since the second half of 2023, has brought the “withheld tax” closer to the “final tax due.”
With the mid-year reduction of the IRS, a decrease in withholding will take effect starting in August, implemented in two phases.
In August and September, extraordinary rates with lower values will be applied. In some instances, these rates will be 0% for gross salaries up to 1,136 euros and pensions up to 1,116 or 1,152 euros, depending on the taxpayers’ family situation.
Subsequently, from October to December, different rates will be applied, which will be higher than those of August and September but lower than those currently in effect from January to July.
The model mirrors the one implemented mid-last year. “There are two sets of tables: one for August and September, which sharply reduces the withholding rates to reflect the previous months; then, a new set of tables for October, November, and December, which simply adjusts withholdings to the new IRS rates approved by the parliament,” explained the Secretary of State.
In some cases, these changes might result in taxpayers receiving a lower refund than usual or needing to pay additional taxes to the State in the final IRS adjustment.
For the government, the reduction in refunds indicates that taxpayers have access to their money sooner.
“The tax is reducing for everyone. Everyone is paying less tax. What might happen is that the final adjustment, which will only occur in this case in 2026, might not exactly match previous years due to the withholding adjustments. But that’s good: it means people have their money in their pockets earlier, through withholding adjustments,” affirmed the government official.
Since the annual IRS considers each taxpayer’s particular factors—from income to deductions value, including already withheld taxes—the adjustment “depends entirely on the specific situation of each taxpayer,” she emphasized.
The mid-year table update occurs because the parliament approved a law proposal this month reducing the annual IRS rates to be applied in 2025 for incomes from the 1st to the 8th bracket.
Following these changes, the withholding tables should be altered again in January 2026.
The State Budget for next year will bring an additional IRS reduction since the new law binds the government to include an additional reduction of 0.3 percentage points from the 2nd to the 5th bracket, likely necessitating another adjustment of the monthly discount.
Regardless of this change, the IRS Code already requires the parliament to update the values defining the annual brackets based on variations in the GDP deflator, which impacts the monthly tables.
“When the bracket limits are altered by the rule introduced in the State Budget, it immediately leads to changes in withholding, so the expectation is that in January there will be a new adjustment based on changes introduced in the State Budget, primarily due to this bracket updating rule,” confirmed Cláudia Reis Duarte.
