The Portuguese Tax Authority (AT) has recently issued detailed guidelines on the application of withholding tax under the IRS Jovem (Youth IRS) scheme. These guidelines aim to clarify the correct procedures for employers and young workers to benefit from the available tax exemptions.
Application of Withholding Tax under IRS Jovem
According to the AT’s guidelines, withholding tax should only be applied to the portion of income that is not exempt. For example, a young worker earning a monthly salary of €1,800 who benefits from a 75% exemption (€1,350) will have withholding tax applied only to the remaining €450. With an effective rate of 14.56%, the withholding will amount to €65.52, compared to the €262.01 that would be withheld without the IRS Jovem scheme.
Procedures to Benefit from the Scheme
To benefit from the reduced withholding tax, young workers must formally notify their employer of their intention to opt into the IRS Jovem scheme. This communication can be made at any point during the year, and the reduction will apply to income paid from the date of the request onward.
Importance of Timely Communication
It is crucial for eligible young individuals to inform their employers about their participation in the IRS Jovem scheme to ensure that withholding taxes are correctly adjusted. Without this communication, the standard withholding rates will apply, which may result in higher refund amounts during the annual IRS settlement but will reduce the net monthly income available.
For more information and access to the official circular issued by the AT, interested parties can consult the Portuguese Tax Portal.
Did you find this article helpful? Share it with friends and family so everyone can benefit from this scheme in Portugal!