IRS reduction for 2025 voted this Thursday

The Government's proposed law to lower personal income tax rates in 2025 will be discussed and voted on this Thursday in the parliament's specialty section.

The discussion is scheduled for the end of the afternoon, in the Budget, Finance and Public Administration Committee, after the plenary session of the Assembly of the Republic.

In the general vote on July 4, the initiative was voted in favor of the PSD, Chega, IL, CDS-PP, PAN and JPP, with abstention from the PS and a vote against from Livre, PCP and BE.

The initiative reduces rates from the 1st to the 8th income bracket , bringing a transversal tax relief across the various income levels.

Although rates only drop up to the 8th step, the reduction is also felt by taxpayers in the ninth bracket, due to the tax's progressiveness rules.

According to the government's proposal, the first-tier tax rate increases from 13% to 12.5%, the second-tier tax rate decreases from 16.5% to 16%, the third-tier tax rate drops from 22% to 21.5%, the fourth-tier tax rate decreases from 25% to 24.4%, the fifth-tier tax rate decreases from the current 32% to 31.4%, the sixth-tier tax rate drops from 35.5% to 34.9%, the seventh-tier tax rate increases from 43.5% to 43.1%, and, finally, the eighth-tier tax rate drops from 45% to 44.6%. The rate for the last income bracket remains at 48%.

As a rule, when there are changes to IRS tax bracket rates, governments update the IRS withholding tax tables so that the monthly tax deduction made from employees' salaries and pensions is closer to the final IRS payable.

In this case, the executive has already said that it will do so, expecting to reflect in August and September the reduction with effects on the first months of the year, in which this reduction had not yet been applied.

In Brussels, speaking to Portuguese journalists upon arrival at the Eurogroup meeting on July 7, Finance Minister Joaquim Miranda Sarmento said he expected that, after the vote on the specifics, the proposal would be approved in the final plenary vote of the current legislative session.

"If the reduction in IRS rates is approved—the rates set out in Article 68 of the IRS Code—the Government will immediately publish the withholding tax tables, which will allow for—in simpler language—retroactive payments to January of this year," the minister stated.

Contrary to the executive's proposal, which passed in general terms, all initiatives from the opposition parties — IL, BE, PAN, Livre and PCP — that envisaged an alternative reduction in IRS rates or changes to other rules of the IRS Code to increase tax deductions (such as deductible expenses related to property charges) were rejected in the plenary session.

The only bills that ultimately failed to be voted on, as they were withdrawn by the parliamentary group that introduced them, were two Chega initiatives. One would have lowered IRS rates more sharply from the 2nd to 5th brackets in 2026, with an additional 0.3 percentage point cut to the government's. Another would have expanded the deduction for housing expenses.

The withdrawal of the initiatives occurred after, during the debate on the Government's proposal, the leader of the PSD parliamentary group, Hugo Soares, opened the door to the inclusion of a rule in the State Budget for 2026 that meets Chega's initiative to reduce rates in that income range.

In this regard, the PS presented an initiative, but it does not include changes to the IRS table.

The Socialist Party's proposal concerns only the reconciliation of the IRS Jovem rules with another existing measure: the salary bonus granted to young workers as a way of refunding tuition fees during the first years of their professional activity.

The PS intends to clarify in the law that the bonus can be combined with the IRS Jovem (Young IRS), which will take effect this year.