The government has already presented the proposal for a reduction in personal income tax (IRS) for this year. However, what relief can be expected? In practice, the impact depends on the tax situation of each household, but simulations released by the Ministry of Finance provide some insights.
A couple with two children, where both earn 1,500 euros per month, will see an annual reduction of 165 euros in IRS compared to what was forecast in the state budget for 2025, according to simulations by the Ministry of Finance.
This simulation was based on the additional reduction of IRS rates amounting to 500 million euros, to be applied retroactively from January, as announced on Wednesday by Prime Minister Luís Montenegro.
If the scenario involves a couple (both taxpayers with two dependents) where both earn a salary of 1,000 euros, the reduction in IRS compared to the 2025 budget will be null (as this simulation did not show any tax to be paid prior to the IRS reduction), while compared to March 2024, the reduction will be 423 euros.
For salaries of 2,000 euros (same family profile and always considering gross values), the savings amount to 248 euros compared to the 2025 budget and 1,133 euros compared to March 2024. For earnings of 2,500 euros, the reduction is 332 euros and 1,492 euros, respectively, and for earnings of 3,000 euros, it is 414 euros and 1,514 euros, respectively.
In a simulation for a couple without dependents, the annual tax savings, compared to the current situation, range from 67 euros (when each earns 1,000 euros gross monthly) to 414 euros (when each earns 3,000 euros).
And for a single person or a retiree, how much will they save?
For a single taxpayer without dependents, annual tax savings compared to the 2025 budget range from 34 euros for salaries of 1,000 euros to 207 euros for salaries of 3,000 euros.
Considering a pensioner with a pension up to 1,000 euros (gross), the annual tax savings compared to the 2025 budget will be 34 euros, increasing to 83 euros for pensions of 1,500 euros, 124 euros for pensions of 2,000 euros, 166 euros for pensions of 2,500 euros, and 208 euros for pensions of 3,000 euros.
The government is preparing to advance the promised reduction in IRS to take effect at the beginning of August. The aim is to boost summer consumption and attempt to counter the economic slowdown.
What does the government proposal entail?
The government’s proposal includes reductions in IRS rates of 0.5 percentage points between the first and third brackets, 0.6 percentage points between the fourth and sixth, and 0.4 percentage points in the seventh and eighth.
On Wednesday, the Council of Ministers approved the draft law for an additional IRS reduction amounting to 500 million euros, which is to be implemented this year. This measure has already been submitted to parliament.
In a statement, the Council of Ministers emphasized that the approved proposal “allows for further tax burden relief, additionally reducing marginal rates in all brackets, up to the eighth bracket.”
In the same note, the Council of Ministers highlighted that the government intends to “closely align the amount of tax withheld with what is due at the end.”
