The reduction in IRS will be discussed this Friday at the Assembly of the Republic following the approval of the urgency in evaluating the Government’s proposal. If approved, the measure will allow for a tax reduction up to the 8th income bracket, but IRS refunds might be smaller next year.
“If the same criterion for constructing withholding tax tables is followed, as expected, the withheld tax will continue to closely align with the final tax due, and refunds are expected to remain reduced,” stated the President of the Order of Certified Accountants (OCC), Paula Franco, to Notícias ao Minuto.
The Government’s bill, presented in Parliament last week, includes an additional IRS reduction of 500 million euros this year. This reduction entails 0.5 percentage points for the first to third brackets, 0.6 percentage points for the fourth to sixth, and 0.4 percentage points for the seventh and eighth brackets.
“The idea is to increase the net income for taxpayers by lowering withholding, thus reducing the refund,” explained Paula Franco to Notícias ao Minuto, adding that “workers can still request higher withholding rates if they wish to create a ‘savings’ with the State through these withholdings.”
In a statement, the Council of Ministers highlighted that the approved proposal “allows for further tax relief by additionally reducing marginal rates across all brackets, up to the 8th bracket.”
The Government announced an IRS reduction that will be partially felt this year. When? Who will benefit from this tax relief? All clarifications on this matter are gathered in this article.
This year’s refunds are lower than last year’s
The IRS refund amounted to 1,377.4 million euros until May, below the 2,020.6 million euros reported in the same period last year, according to the budget execution summary.
According to the document, disclosed by the Directorate-General of the Budget (DGO), direct tax refunds, which also include, for example, Corporate Income Tax (IRC), totaled 1,666.4 million euros up to May, compared to 2,325.1 million euros in the same period last year.
This annual tax declaration reflects the various changes that impacted the IRS in 2024, initially through that year’s State Budget (OE2024), followed by a series of amendments passed in parliament during the summer of the previous year.
The changes involve rate reductions affecting the brackets. Initially (through OE2024), this applied to the first five brackets, with an additional reduction (between 0.25 and 1.5 percentage points) on the first six brackets.
In 2024, the bracket limits were also updated by 3%, leading to changes updating the minimum existence (tax-exempt threshold) and the specific deduction (previously ‘frozen’ at 4,104 euros for several years).
Most of these IRS changes have already been reflected in the withholding tables, resulting in the monthly deducted amount per taxpayer being lower than in previous years.
The decrease in tax withheld monthly throughout 2024 (effectively an advance payment by workers and pensioners to avoid paying the full IRS amount at the time of annual filing) will affect the refund amount or any remaining tax owed.
