Companies are required to implement the new IRS withholding tables this month, as set by the government, with lower rates than those of the year’s first seven months. The tax relief will become noticeable when employees receive their August salaries. What changes are expected?
The tax relief brought by the adjustment of general IRS rates in the first eight income brackets will take effect this month as employees receive their August paychecks. This also applies to pensioners from Social Security and Caixa Geral de Aposentações (CGA).
Since the order approving the new tables “takes effect from August 1, 2025,” the reduced rates must be applied to “income paid or made available” to workers from that date.
However, if companies and other salary-paying entities (such as IPSS, foundations, or associations) are unable to withhold August IRS according to the new rates, they may, in extraordinary cases, make adjustments later, by the end of the year.
This possibility is expressly noted in the government’s order from July 22 and applies to both August and September withholdings, the two months in which rates are especially lower than usual.
The order stipulates that “the entity responsible for withholding may make corrections to withholdings in subsequent months, up to and including December 2025.”
What to expect?
The government approved tables for two distinct periods.
The first tables, for August and September, have exceptionally lower rates aimed at compensating withholdings from January to July, during which the final version of the IRS, only approved in July, was not yet considered.
In a second period, in October, November, and December, the rates will be higher than those in August and September, but lower than those applied until July, aiming to align with the final IRS version.
In August and September, those with a gross salary up to 1,136 euros will not pay IRS, as the rate is 0% up to that income level. Just above that level, withholding is less than ten euros for gross salaries up to 1,574 euros.
Attention to next year’s refunds
Simulations by the consultancy PwC for Lusa indicate that, generally, refunds related to the 2025 IRS will reduce refunds in 2026. Meanwhile, those who already owe additional tax at the time of final adjustment will need to pay a higher amount next year when the Tax and Customs Authority (AT) performs the final settlement.
This possibility prompted the PS to question the government with the Finance Minister, Joaquim Miranda Sarmento, about whether the reduction in deductions in the coming months is “excessive” and what impact it will have on taxpayers in 2026.
In a question submitted to Parliament on Monday, July 28, the socialist bench stated that in 2024, when the IRS was reduced mid-year, the first government of Luís Montenegro made an “excessive reduction” of the monthly deduction, creating the “illusion, on the eve of the 2025 budget proposal’s evaluation, of a very significant tax reduction,” and claims that the government now opted to repeat that formula ahead of municipal elections.
When announcing the new tables last week, Secretary of State for Fiscal Affairs, Cláudia Reis Duarte, told Lusa that the trajectory of “alignment” between the monthly collected tax and the final IRS remains.
“What may happen is that the final adjustment, which in this case is only done in 2026, may not exactly correspond to previous years’ adjustments, due to the retention adjustments. But that is good: it means people have their money in their pockets sooner, through adjustments in withholdings,” she stated.
