The Portuguese government has announced a new IRS (personal income tax) cut for 2025, which will have a direct impact on the monthly income of millions of families. The measure, to be applied starting in September or October, provides for a reduction of between 0.4% and 0.6% in IRS rates, with immediate effects on taxpayers’ wallets — but also with future implications for IRS refunds.
📌 More Monthly Money, Smaller Refunds
With the new withholding tax tables coming into effect, taxpayers will have less money deducted each month. According to the Ministry of Finance, the idea is for the withheld tax to be as close as possible to the final amount owed, preventing the state from “holding on” to money that could be with taxpayers.
However, this change will mean that IRS refunds in 2026 will be smaller — or, in some cases, that tax will have to be paid at the end of the fiscal year.
🧾 The Experts’ View
The head of the OCC (Order of Certified Accountants), Paula Franco, highlighted that this is a positive and fair change, as it directly benefits the Portuguese middle class, covering incomes up to the 8th IRS bracket. She also emphasizes:
“We need to end the myth that not getting a refund or having to pay tax at the end means that taxes are going up.”
Decon Proteste reinforces that, despite the smaller refund, there will be a positive impact on families’ monthly budgets. However, it warns of the importance of greater financial planning throughout the year.
💬 Savings Example
According to simulations by the Ministry of Finance:
- A couple with two children and a gross monthly income of €3,000 each could save up to €414 per year.
- A single person with no children earning €1,500 per month will save around €83 annually.
These savings will be reflected over the months, not in a large final refund as in previous years.
🗳 Political Context and Debate
The tax relief proposal is generating political debate. The PSD and Chega parties have shown themselves willing to approve the measure, while parties like the Bloco de Esquerda, PCP, and PAN have criticized the proposal, arguing that it could accentuate inequalities and calling for the inclusion of more measures, such as deductions on mortgage interest or a reduction in VAT on essential goods.
✅ Conclusion
This 2025 IRS reduction brings monthly tax relief — but requires an adjustment of expectations regarding future refunds. For taxpayers, the essential thing will be to understand the new logic of withholding and to adapt the management of their personal budget.
At FA Accounting, we help our clients better plan their fiscal life and interpret the impacts of new measures. If you need support to understand how this change affects your IRS, we are here to help.
Want to know how to maximize your tax benefits? Talk to us or visit FA Accounting.
Did you like this article? Share it with friends and family so everyone can benefit from this regime in Portugal!