The annual submission of the IRS declaration officially began today, although the system was previously available on the Finance Portal. Many taxpayers utilized this advance access to simulate their taxes for 2024 and discovered that they might receive a smaller refund than usual or might even end up owing taxes.
An official from the Ministry of Finance explained that IRS refunds are essentially a return of the excess tax paid through withholdings, which ideally should closely match the final IRS due.
It’s noted that the withholding tax tables applied in the latter part of 2024, especially those seen in September and October, reflected the approved tax rate reductions by parliament, following a government proposal. This adjustment allowed for an earlier return of taxes.
As a result of this earlier tax return, it’s “expected that there will be less need for an adjustment at the end, since these amounts were provided in advance, preventing families from having to wait for this year’s refund,” clarified the same official from the Ministry led by Joaquim Miranda Sarmento.
In practical terms, the reduction in withholding (a mechanism functioning as an advance on the tax each taxpayer owes) meant that in the months of September and October of the preceding year, the net amount of salary and pensions deposited was higher.
The trade-off for this increased disposable income during those two months is that the amount returned then had now to be ‘subtracted’ from the total withheld over the year, resulting in a reduced refund or, in some cases, the necessity to pay taxes instead.
This adjustment, as the Ministry of Finance reminds, “will depend on each specific situation,” being “affected by various factors,” the impact of which will only be clear after submissions and settlement of the declarations. Influential elements include the income changes between 2024 and 2023, personal and family circumstances of each taxpayer, or the amount of deductions to be collected.
Paula Franco, head of the Chartered Accountants Association, emphasized in a statement that a decrease in refunds was “expected” due to the reduction in withholding, recalling that the association had issued several warnings on this issue.
However, Paula Franco noted that a decreased refund does not mean that taxpayers are paying more taxes, but is mainly a result of the reduction in withholding in 2024.
Paula Franco provided some examples to illustrate this situation, highlighting the case of a single pensioner with a pension of around 1,300 euros, who last year received about 500 euros in refund and will this year pay 50 euros. In another example, a couple of pensioners, each receiving pensions of about 3,500 euros, simulated their situation and concluded they would receive a 2,500-euro refund this year compared to about 4,000 euros the previous year.
