The proposal to reduce IRS in 2025 and the commitment to further lower the tax next year are under review today at the Assembly of the Republic (AR) in a final global vote. What impact will this year’s tax reduction have on Portuguese citizens’ finances?
Changes This Year
For the 2025 IRS, the table restructuring will result in a decrease of 0.5 percentage points in rates from the 1st to the 3rd brackets, 0.6 points from the 4th to the 6th brackets, and 0.4 points from the 7th to the 8th brackets.
With the change, the rate for the 1st tier will decrease 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 tier will move from 43.5% to 43.1%, and finally, the 8th tier from 45% to 44.6%.
The rate for the 9th income tier remains at 48%. However, as IRS is calculated progressively – applying the respective rate to each slice of income – taxpayers in the 9th tier will also feel a reduction due to the lower rates in the lower tiers.
And for 2026?
For 2026, the new IRS table restructuring includes an additional reduction of 0.3 percentage points from the 2nd to the 5th brackets compared to the table version now set.
This reduction will cost the public coffers 111.32 million euros and will offer a monthly relief of up to seven euros.
Simulations: What is the Impact on the Portuguese?
In practice, the impact of the changes in 2025 depends on each family’s tax situation, but simulations provided by the Ministry of Finance give some indications.
A couple with two children where both earn 1,500 euros monthly will see an annual reduction of 165 euros in IRS compared to what was anticipated in OE2025, according to Ministry of Finance simulations.
A simulation for a couple without dependents foresees an annual tax saving compared to current rates, between 67 euros (when each earns 1,000 euros gross monthly) and 414 euros (when each earns 3,000 euros).
In the case of a single person without dependents, the annual tax saving compared to what is stipulated in OE2025 ranges from 34 euros for a salary of 1,000 euros to 207 euros for a salary of 3,000 euros.
Considering a pensioner with a pension up to 1,000 euros (gross), the annual tax saving compared to OE2025 will be 34 euros, increasing to 83 euros for pensions of 1,500 euros, to 124 euros for pensions of 2,000 euros, to 166 euros for pensions of 2,500 euros, and to 208 euros for pensions of 3,000 euros.
On the other hand, simulations by PwC reveal that the IRS reduction will allow a single worker without children, earning 1,000 euros, to pay 34 euros less in annual taxes than with the current IRS table.
