IRS descent requires changing retention tables twice in a few months

Din the debate of the motion of censure presented by the Aquida, on Tuesday in parliament, Luís Montenegro said that the lowering of the IRS rates from the 1st to the 6th steps of income will be felt by taxpayers in November, through a reduction of monthly retention rates.

From that order, companies, public services, private institutions of social solidarity, Social Security, the General Pensions Fund and other entities that pay income will have to adapt their computer systems to process the values according to the new fees in November.

Then, regardless of whether the State Budget (OE) proposal for 2027 contains, or not, a further decline in IRS rates, companies will have to apply new retention tables at the beginning of next year, because from January there is a change in the IRS that results from an automatic update of two factors that influence the calculation of the tax.

The tax legislation provides for an annual update of the figures defining the nine levels of income according to the evolution of the Gross Domestic Product (GDP) and the change in GDP per employee, and also provides for an update of the so-called “specific deduction” (a value subtracted from the income of workers before calculating the IRS, which varies according to the evolution of the Social Support Index).

For these two factors to be translated into wages at the start of 2027, it will be necessary for the Government to fix, by order, new retention tables at the source at the beginning of next year, which means that there are at least two adjustments between the end of this year and the beginning of 2027.

We need to know what will happen to the retentions at the source in December 2026. Lusa asked the Ministry of Finance if the December tables will be the same as November or if there will be some tables in November, others in December and others in January 2027, but did not get a reply.

When taxpayers submit income declarations between 1 April and 30 June 2027 for the fiscal year 2026, the Tax and Customs Authority (AT) will calculate the tax according to the levels of the scales in force on 31 December 2026.

Instead of using as a reference the fees that were foreseen so far, the tax will use the fees now announced by Luís Montenegro.

At that time, in making the tax right, the AT will take into account the value already advanced to the State through withholdings at source.

As the IRS is calculated progressively, the fall in rates from 1st to 6th step of income will also be felt by taxpayers of 7th, 8th and 9th steps, because these taxpayers are taxed, in the first slices of their income, through marginal rates of the lower steps (from 1st to 6th).

As for the year 2027, the two updates that are already guaranteed – within the limits of the nine echelons and the specific deduction – will have a budgetary impact of EUR 401 million, according to the accounts that the Government shared with Parliament when it informed the Budget, Finance and Public Administration Committee of the Invariant Policy Framework (IPO) of 2027.