New changes to the IRS: Reduction of rates and updating of specific deductions

Parliament recently approved a series of changes to the IRS, which have already been published in the Official Gazette. These changes, which include reductions in the rates of various brackets and the updating of specific deductions, aim to provide greater tax relief for taxpayers, especially those in the lowest and middle brackets.

1. Reduction of personal income tax rates

One of the most significant measures is the reduction in the IRS rates applicable to the first six income brackets. These changes result in greater financial relief for taxpayers:

• In the 1st bracket, the rate drops from 13.25 per cent to 13 per cent.
• In the 2nd bracket, the reduction is more pronounced, going from 18% to 16.5%.
• In the 3rd bracket, the rate drops from 23% to 22%.
• In the 4th bracket, the rate drops from 26 per cent to 25 per cent.
• For the 5th and 6th brackets, the rates drop to 32 per cent and 35.5 per cent respectively, compared to the previous figures of 32.75 per cent and 37 per cent.

Taxpayers in the highest brackets do not benefit from reductions, with the rates remaining unchanged for the 7th, 8th and 9th brackets, except for a small adjustment to the bracket limits, which reflect changes in the structure of the income covered.

2. Updating the bracket limits

The limits of the taxable income brackets have also been updated to reflect the new economic reality. For example, the 7th bracket now covers income between 39,791 and 43,000 euros, while the 8th bracket covers income from 43,000 to 80,000 euros. The 9th bracket, which previously started at 81,199 euros, now covers incomes above 80 thousand euros.

In addition, the limits of the brackets will be adjusted annually based on the rate of change in the Gross Domestic Product (GDP) deflator and the rate of change in GDP per worker, according to data provided by the National Statistics Institute (INE).

3. Evolution of the Specific Deduction

The specific deduction, which was frozen at 4,104 euros, will now evolve in line with the rate at which the Social Support Index (IAS) is updated. This change is significant, as it will allow deductions to keep pace with the cost of living, providing greater tax justice and financial relief for taxpayers.

Conclusion

These changes to the IRS represent a concrete measure to ease the tax burden on Portuguese incomes, especially in the lower and middle income brackets. With the reduction in rates and the updating of specific deductions, many taxpayers will feel an increase in disposable income, which could have a positive impact on the economy and the well-being of families.

Prepare yourself for the changes and ensure that you are maximising the benefits that these new rules bring to your family budget.

The information in this article does not constitute any personalised recommendation and does not dispense with consulting official and legal entities for an informed decision.