With the new fiscal year on the horizon, Portuguese taxpayers can expect significant changes in their monthly income. The IRS (Personal Income Tax) withholding tables for 2025 promise to bring some relief to the wallets of workers and pensioners. To help us better understand the practical impact of these changes, we spoke with Daniel Rocha Cardoso, Partner at FA Accounting & Management, who shares his analysis of what these changes represent for taxpayers and companies, as well as the challenges that still persist in the Portuguese tax system.
What is your opinion on the new IRS withholding tables for 2025? Do you believe these measures will have a significant impact on the net income of workers and pensioners?
The new IRS withholding tables for 2025 reflect an important adjustment in Portuguese fiscal policy, seeking to adapt to inflation and the evolution of the labor market. In general terms, the government’s intention in updating these tables is to reduce the withholding tax at source for certain income brackets, allowing workers and pensioners to have a higher monthly net income. However, the real impact will depend on each taxpayer’s profile, their salary range, and family structure.
For some, this update will mean immediate relief in their monthly net salary. However, there are cases where the new tables may result in an increase in withholding tax, reducing liquidity in the short term. It is important for taxpayers to understand that IRS withholding is not equivalent to an increase in the total tax burden, as the final amount due will be adjusted in the annual IRS return.
The updating of the IRS brackets by 4.6% and the increase in the national minimum wage to 870 euros are positive measures for workers. From your perspective, what challenges might these changes bring to the business sector?
The increase in the minimum wage and the updating of the IRS brackets are measures aimed at improving the purchasing power of workers, especially those in the lower brackets. However, from a business point of view, these changes can represent significant challenges.
For small and medium-sized enterprises (SMEs), which make up the majority of the Portuguese business sector, the increase in the minimum wage translates into an increase in wage and social security costs. Companies operating in sectors with reduced margins, such as restaurants, commerce, and agriculture, may face difficulties in supporting these costs without increasing the prices of their products or services.
In addition, the adjustment of the IRS brackets may impact the management of benefits and tax incentives in companies, requiring a review of the salary policy and contributions to Social Security. Some companies may try to mitigate the financial impact through staff reductions, increased automation, or other operational efficiency strategies.
Do you believe that these changes can influence the economic capacity of workers in a positive way? Which sectors may be most benefited or harmed?
The improvement in workers’ net income can increase consumption capacity, which benefits sectors directly linked to commerce, services, tourism, and leisure. With more money available, families tend to spend more on essential goods, leisure, and even small investments.
Sectors such as retail, restaurants, and tourism can be the most benefited, as greater financial availability for consumers stimulates the consumption of these services. On the other hand, sectors that depend heavily on labor-intensive work, such as agriculture and manufacturing, may face challenges with the increase in wage costs.
Another important aspect to consider is inflation. If wage increases are not accompanied by sustainable productivity growth, the additional costs can be passed on to final prices, reducing purchasing power in the medium term.
Many workers who did simulations found a possible decrease in income compared to 2024, or even the need to pay the State. How do you interpret this scenario? Do you believe there are flaws in the communication or understanding of the new tables?
The fact that some workers perceive a possible decrease in income compared to 2024 may be related to how the withholding tax at source was adjusted. In many cases, workers are accustomed to a certain level of withholding, and when changes occur, they may misinterpret the real impact.
If the withholding is reduced too much throughout the year, it can lead to a higher amount to pay in the IRS settlement the following year. This can give the false impression that the tax burden has increased, when, in reality, the tax was only deferred to a later time.
A flaw in the communication of the new withholding tables may have contributed to this confusion. It would be important for the Tax Authority to provide more detailed and accessible information on how these changes impact different income profiles and encourage taxpayers to make more accurate simulations.
With the elections in sight, if there is a change in political orientation in the Government, what are your expectations regarding the continuity of these fiscal measures? Could there be a reversal or significant adjustments?
The proximity of the elections raises uncertainties about the continuity of these fiscal measures. If there is a change of government with a different political orientation, it is possible that adjustments will be introduced in the withholding tables, in the IRS brackets, or even in the tax rate.
Governments with a more liberal approach may focus on reducing the overall tax burden, especially for companies and workers with higher incomes. On the other hand, a government with a more social vision may seek to maintain or reinforce redistribution policies, adjusting IRS rates to ensure greater equity.
Regardless of the political direction, it is likely that any change will not be immediate, as there are budgetary commitments to fulfill and fiscal measures that require a transition period to be implemented.
From your perspective, how can leaders and entrepreneurs mitigate possible negative impacts of these changes on their organizations?
Entrepreneurs should adopt a strategic approach to deal with the impact of these changes. Some actions that can be taken include:
- Reviewing the salary policy to ensure that wage increases are sustainable within the company’s cost structure.
- Fiscal optimization and incentives to maximize benefits and minimize financial impacts.
- Investing in automation and operational efficiency to reduce dependence on labor-intensive work.
- Training and qualifying employees to increase productivity and justify wage increases.
Do you believe that these changes can trigger an increase in consumption capacity and, consequently, boost some sectors of the economy? What type of companies could benefit from this effect?
Yes, an increase in disposable income can stimulate consumption and benefit sectors such as commerce, tourism, restaurants, and consumer goods. Small local businesses can gain from the increase in demand, as well as companies that offer products and services accessible to families with greater purchasing power.
However, if prices rise due to increased business costs, the positive impact may be mitigated.
What financial strategies would you recommend for companies and workers to better prepare for these changes?
- Companies: Plan budgets with a margin for increased wage costs, optimize processes, and explore tax incentives.
- Workers: Manage the monthly budget better, consider investments, and use tax simulation tools to avoid surprises in the IRS settlement.
Do you consider that the implementation of these measures was well structured? What suggestions would you make to improve the positive impact and mitigate negative effects?
Although the intention of the measures is positive, the communication and implementation could have been clearer. A more effective strategy would include:
- Early disclosure of the changes with detailed simulations.
- Clarification campaigns for workers and entrepreneurs.
- Gradual adjustments to reduce abrupt impacts.
SOURCE: Pontos de Vista
By: Jorge Antunes
Date: 09/05/2025