New withholding tax model comes into effect today

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The new model for withholding tax takes effect today, with the government aiming for changes that will ensure that an increase in gross income corresponds to an increase in net income.

“This new model aims to ensure that two fundamental objectives are met: to ensure that an increase in gross income always corresponds to an increase in net income at the end of the month; to ensure a greater and increasing approximation of the value of withholdings to the value of the IRS assessed through the submission of the IRS Model 3 declaration,” says the Ministry of Finance in a statement released on Friday.

According to the Government, the new model is, in practice, an approximation of the amount withheld throughout the year to the amount to be paid annually.

According to the IRS simulations, in the case of a single person with no dependents the monthly net gains against the first half of the year vary between 1% and 2% for gross salaries between 760 euros and 3,400 euros, while a single person with a dependent can see his or her net salary increase between 2% and 5% for the same salary range.

In the case of a married couple with one dependent, the net gain is balloted between 1% and 3% on these gross incomes and against the first six months of the year.

The Portuguese Tax Authority (AT) explains, in information available on its website, that the effective monthly withholding tax rate is calculated by the ratio between the amount withheld (which results from applying the maximum marginal rate, the portion to be withheld and, if applicable, the additional portion to be withheld per dependent) and the amount of income paid or made available.

The effective monthly withholding rate at the limit of the tax bracket “is not relevant for the purposes of calculating withholding tax, corresponding only to the final withholding rate for salaries with the limit values of each line of the respective tables.

It results, therefore, from the application of the maximum marginal rate, the portion to be abated and, if applicable, the additional portion to be abated, and has as a reference the existence of only one dependent.

The AT details that the effective monthly withholding rate that appears on the pay slip is the effective rate that was applied to the taxpayer that month, “according to the monthly income earned subject to and the withholding tax resulting from the application of the new tables.”

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