Portuguese income tax (IRS) has been subject to several changes, introduced through OE2025, the effect of which will be partially felt in the coming months.

In addition to the expansion, on several fronts, of the IRS Jovem, several updates will be added in 2025, all with an impact on the net income of workers and pensioners.

Update of tiers

The limits of the nine taxable income bands are updated by 4.6%, which guarantees an increase in the value of the 'slice' of income on which each of the general tax rates applies. This update also prevents those who have salary adjustments of up to 4.6% from seeing their taxes get worse.

Expansion of the Young IRS

The Youth Income Tax is nothing new, but the model that will be valid from January introduces several changes on several fronts. From the outset, the number of years during which you can benefit from this regime that grants tax exemption to workers up to 35 years of age increases from five to 10 – anyone who turns 36 by the end of 2025 can no longer benefit.

They can now benefit all people up to the age of 35, regardless of the level of academic qualification and study cycle, and the limit on the value of IRS-exempt income also increases, rising to the equivalent of 55 times the value of the Income Index. Social Support (which in 2025 will rise to 522.5 euros), that is, around 28 thousand euros per year.

The exemption is 100% in the 1st year of earning income, 75% from the 2nd to 4th year, 50% from the 5th to 7th year and 25% in the remaining three years.

Expansion of the specific deduction

The specific deduction had been frozen at 4,104 euros for several years, having undergone a first update in 2024 through a set of changes to the IRS approved by parliament. In 2025, its value will increase again as OE2025 determines that this deduction becomes equivalent to 8.54 times the IAS.

The specific deduction is automatically granted to all retirees and workers, being greater for those whose 11% Social Security discount results in a higher value. Luís Nascimento, from Ilya consultancy, says that this update will also have an impact on self-employed people, that is, on the portion up to which they do not need to present activity expenses.

Drop in 'green receipts' retention rate

Contrary to what happens with employees and pensioners, the IRS withholding rate on 'green receipts' is always the same, regardless of income. This retention rate was until now 25% and in 2025 it will be 23%.

SMN remains exempt from IRS

The value of income exempt from IRS (known as the existence minimum) will once again follow the rise in the national minimum wage, ensuring that anyone who earns up to 870 euros per month (12,180 euros annually) in 2025 will not pay tax.

Meal voucher on card

The value of the meal allowance paid on a card exempt from IRS and Social Security contributions will rise from 9.60 euros in 2024 to 10.20 euros in 2025, this being a measure that resulted from the tripartite Social Concertation agreement.

The value of this subsidy paid in cash exempt from IRS remains at six euros.

Retention of overtime work

Remuneration amounts relating to overtime will be subject to a withholding tax equivalent to 50% of the rate corresponding to the withholding of the worker's monthly salary. Under the regime in force until now, this 50% discount on retention was only applied from the 101st overtime hour onwards.

Performance and productivity awards

Productivity, performance or profit-sharing bonuses, without a regular nature, up to a value less than or equal to 6% of the worker's basic remuneration are exempt from IRPF and Single Social Tax (TSU), but with the condition that the company carries out a minimum increase of 4.7% in the base remuneration of workers who earn an amount equal to or less than the base (annual) remuneration existing in the company at the end of the previous year; that there is an overall increase of 4.7% and that it is covered by a collective labor regulation instrument signed or updated less than three years ago.

Withholding at source

As has been happening, in 2025 new Income Tax withholding tables must be applied, designed to accommodate changes in the tax.