The Government announced a new IRS reduction for 2026, with retroactive effects from January and impact on source tax withholdings from November. The announcement was made by the Prime Minister, Luís Montenegro, during the parliamentary debate on the motion of censure presented by Chega. The reduction of rates in the first six tax brackets should reflect in lower monthly withholdings, increasing the net salary of covered workers. According to the Lusitanian news agency (Lusa), the relief covers approximately two million families and represents 400 million euros.
Employers will need to update their IT systems to apply the new source tax withholdings. The obligation also covers public services, private social solidarity institutions and pension-paying entities, such as Social Security and the Caixa Geral de Aposentações (Public Sector Pension Fund). It remains unclear how the tables will be organized for the last two months of the year, as the Ministry of Finance had not yet responded whether November and December will have the same tables or different rules.
The announced reduction applies to the rates of the first six tax brackets, but its effects may reach taxpayers with higher incomes due to the progressivity of IRS. The taxable income is divided into portions, to which the rates of the corresponding brackets are applied, so those in the seventh, eighth or ninth brackets also benefit. Those who do not pay IRS do not obtain additional savings through this measure.
A second change to the tables is planned for January 2027, resulting from the annual updates of the limits of the nine brackets and the specific deduction, whose budgetary impact is estimated at 401 million euros. The concrete values of the reduction for 2026 are not yet known, with the presentation of the measure in the Council of Ministers scheduled for next week.
