The IRS reduction takes effect for November earnings, covering employees and pensioners, with retroactive application to January. The announcement was formalized by the executive led by Luís Montenegro, contemplating the return of amounts withheld in excess throughout the entire year. The measure is reflected in both the monthly salary and the Christmas bonus, aiming to implement the tax relief approved by the Assembly of the Republic.
To implement this retroactive reduction, the Ministry of Finance designed extraordinary withholding tax tables for the last months of the year. Employers and Social Security will deduct the values over-withheld between January and October, generating a relevant one-time increase in disposable income. This mechanism repeats compensation models already used in previous budgetary exercises.
The tax relief focuses primarily on the middle class, applying to marginal rates up to the sixth bracket of taxable income, with an estimated budgetary impact between 400 and 500 million euros. In the intermediate brackets, with gross salaries between 1,000 and 2,500 euros, the combined monthly relief may translate into dozens or even hundreds of euros returned at once. However, experts warn that, by withholding less now, the refund to be settled by the Tax Authority in the following Spring will be more modest.
The administrative processing requires human resources departments and computer systems to update the calculation formulas before the November payroll closes. If any processing entity cannot load the guidelines in time, the adjustment will have to be regularized by the Christmas bonus payment or at the close of the December fiscal year. With the publication of the government order in the Official Gazette, the waiting period ends for social partners and unions that demanded the expeditious implementation of the tax cut.
