Recently, many young workers in Portugal have faced the decision between opting for the immediate reduction of IRS withholding at source or waiting for the annual refund, under the IRS Jovem regime. This program aims to alleviate the tax burden on the income of young people at the start of their careers, providing them with a financial incentive in the initial years of their professional activity.
IRS Jovem: An Overview
IRS Jovem is a tax benefit for young people between 18 and 26 years old (which can extend up to 30 years old for master’s or doctoral graduates) who have started their working activity. This regime allows for a partial exemption from IRS on income from dependent or independent work in the first five years of activity, which do not necessarily have to be consecutive.
Available Options: Withholding at Source vs. Refund
Beneficiaries of IRS Jovem can choose between two modalities to enjoy this incentive:
- Reduction in Withholding at Source: By informing the employer of the intention to join the regime, the monthly IRS withholding is adjusted, resulting in higher net salaries throughout the year. This option provides an immediate increase in monthly disposable income.
- Annual Refund: Alternatively, young people can choose to maintain withholding at source in the traditional way and claim the benefit when submitting their annual IRS declaration. In this modality, the tax relief is received all at once, through a larger refund.
Considerations When Making the Decision
The choice between the two options depends on individual financial preferences and needs:
- Need for Immediate Liquidity: For those facing significant monthly expenses, such as rent or loans, the reduction in withholding at source can be advantageous, providing continuous financial relief.
- Forced Savings: Young people who do not have immediate expenses or who prefer to receive a larger amount at once can opt for the annual refund, using it for investments or larger expenses.
It is important to note that, regardless of the option chosen, the total tax benefit throughout the year will be equivalent. The main difference lies in when the tax relief is felt: monthly or annually.
Procedures to Join IRS Jovem
- Reduction in Withholding at Source: The young person must inform their employer of their intention to join IRS Jovem so that the employer can adjust the withholding at source calculations accordingly.
- Annual Refund: If opting for this modality, the beneficiary only needs to indicate the application of the regime when submitting the annual IRS declaration.
For more information about IRS Jovem and the joining procedures, consult the official portal of the Portuguese Government.
In summary, the decision between adjusting withholding at source or waiting for the annual refund under IRS Jovem should be weighed based on the financial situation and individual preferences of each young worker.
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