A recent approval was secured a day after the proposal passed in the Assembly of the Republic with favorable votes from PSD, CDS-PP, Chega, IL, and PAN, while PS and JPP abstained.
During the plenary session, votes on amendments proposed by PSD and CDS-PP were repeated. At the request of the Social Democratic Party, the bill was expedited and was not sent to the parliamentary committee on Budget, Finance, and Public Administration, allowing for faster submission to the President.
Once published in the Diário da República, the government will amend the withholding tax tables to reflect a reduction in IRS rates from the 1st to the 8th bracket.
This tax relief, estimated by the government at 500 million euros in 2025, will benefit taxpayers across all brackets. Although the measure only cuts rates in the first eight brackets, the 9th bracket will also gain due to the progressive tax structure.
The reform will reduce rates in the 1st to 3rd brackets by 0.5 percentage points, 0.6 points in the 4th to 6th brackets, and 0.4 points in the 7th and 8th brackets.
The rate for the 1st bracket decreases from 13% to 12.5%, the 2nd from 16.5% to 16%, the 3rd from 22% to 21.5%, the 4th from 25% to 24.4%, the 5th from 32% to 31.4%, and the 6th from 35.5% to 34.9%. Meanwhile, the 7th drops from 43.5% to 43.1%, and the 8th from 45% to 44.6%. The 9th bracket remains at 48%.
In 2026, “as part of the State Budget for 2026,” the government will propose an additional reduction of 0.3 percentage points for the 2nd to 5th brackets.
This commitment ties the government to present a new proposal for table reform relevant to income earned in 2026.
The additional reduction of 0.3 percentage points was agreed upon by the social-democratic and centrist parties to align with Chega, which had initially proposed a law project before removing it after PSD committed to including the reduction in the 2026 budget.
IRS deductions are determined by withholding tax tables, and with the reduced IRS in 2025, the government confirmed adjustments to ensure monthly deductions match final IRS amounts more closely.
Finance Minister Joaquim Miranda Sarmento announced on July 7 that distinct tables will be applied, first lowering in August and September to account for IRS cuts retroactive to January, then adjusting in October for ongoing monthly reductions.
IRS is annually calculated on total income earned throughout the year. To collect revenue continuously, employees and pensioners contribute monthly through withholding taxes.
