Have you had the chance to simulate your IRS and realized your refund will be lower this year, or you might even owe money? There’s an explanation for this. Paula Franco, president of the Order of Accountants (OCC), clarified that this results from the reduction of withholding tax in 2024, which left more money available monthly.
Speaking to Lusa on Monday, Paula Franco noted receiving feedback from individuals who are “surprised by the considerable decrease in refunds or even by having to pay taxes.”
However, she emphasized that this situation was “expected”, considering the trend over the past two years of aligning the “final IRS bill” more closely with the monthly withholding. Additionally, there was a “substantial reduction” in withholding last September and October to align the monthly tax payment with the reduced IRS rates and other tax changes approved by parliament at the start of summer.
“So it was expected that this year, indeed, when taxpayers submit their IRS declaration and run the simulation, they will find they receive significantly less or even need to pay taxes,” highlighted Paula Franco.
As an example, Franco cited the case of a single pensioner with a pension of approximately 1,300 euros, who last year received around 500 euros in refunds and this year will pay 50 euros. In another case, a couple of pensioners, each receiving about 3,500 euros in pensions, simulated their situation and concluded they would receive a refund of 2,500 euros this year, compared to approximately 4,000 euros last year.
Are taxpayers being disadvantaged?
Paula Franco points out, however, that a decrease in the usual refund or a shift from a refund to an “IRS bill” does not mean taxpayers are being disadvantaged or paying more tax, as this situation arises because they withheld less tax monthly in 2024.
“Taxpayers are not disadvantaged,” simply meaning that workers and pensioners “advanced less to the State, withheld less, had more money in their pockets during the year, and now in this final adjustment, there are fewer refunds or taxes to pay,” she stated.
The adjustments to withholding tables over recent years aim to increasingly align the withholding with the tax each person effectively has to pay, but the final result is always influenced by the deductible expenses presented.
Following several IRS changes approved by parliament, new withholding tables were published with specially reduced rates in September and October to compensate taxpayers for the excess withheld from January to August (before the tax changes took effect).
During those two months, wages up to approximately 1,700 euros gross were subject to 0% IRS (benefiting taxpayers with an increase in disposable income), and for higher wages, the withholding was also lower than usual.
