The anticipated adjustment of the IRS tax rates this year, expected to take place in August, will slightly increase the monthly salary of many Portuguese citizens. However, it is possible that the IRS refund in 2026, concerning the income of 2025, might decrease again, similar to what many experienced this year.
The explanation is straightforward: with the adjustment of the tax rates, Portuguese citizens will advance less money to the State for this tax, resulting in a lower refund amount in 2026. Some might even have to pay taxes.
DECO PROTeste explains that “if taxpayers are advancing less money to the State in their monthly deductions, it is very likely that they will be entitled to receive less in 2026.”
It also warns that “in many cases, some taxpayers who usually were entitled to a refund might actually have IRS to pay next year. The adjustment will be made when submitting the IRS declaration from April 2026.”
Practically speaking, the settlement will make a difference in the monthly budget of families, as per the consumer protection organization, but it should be noted that it is an adjustment to the amount retained monthly, “to try to get as close as possible to what the taxpayer really owes.”
For this reason, “it is important for consumers to do more planning in the budget throughout the year.”
DECO PROTeste recalls that “during the period of IRS declarations this year, many taxpayers were surprised because they had to pay more IRS than expected or did not receive the usual refunds to cover extra expenses.”
“This happened because they withheld less tax throughout 2024. The same could happen in 2025, impacting refunds or additional payments in 2026,” the organization clarified.
IRS Rate Reduction is “Positive,” but Accounting Order’s Chairwoman Issues Warning
Paula Franco, the chairwoman of the Order of Accountants, considered the announced IRS rate reduction as “necessary” and “positive,” mainly benefiting the middle class, which “bears most” of the income taxes.
However, she warned that the adjustment the Government announced on IRS withholding rates will reflect in the final tax settlement.
“In the past, what happened was that withholdings at the source were excessive, so the taxpayer gave more money to the State, advanced more, and then received their IRS refunds. With the adjustment of withholding tables, these advances get as close as possible to the final payment, and therefore, taxpayers should not expect to continue making that forced saving with the State,” she emphasized.
The Council of Ministers approved on Wednesday the law proposal for an additional IRS reduction of 500 million euros, to be applied this year, a measure that has already been presented to parliament.
In a statement, the Council of Ministers highlighted that the approved proposal “allows a new relief of the tax burden, further reducing marginal rates across all brackets up to the 8th bracket.”
The same notice from the Council of Ministers noted that the Government aims to “get as close as possible to the value of the tax withheld to the one that is owed in the end.” “Thus, new withholding tables will be approved reflecting the IRS rate reduction, retroactive to January,” it stated.
