IRS reduction is on the agenda in Portugal: How will the 400 million euro tax change affect employees?

The new IRS discount proposed by the Portuguese Government to be applied to 2026 incomes was brought to the agenda of the Parliament.

The proposal calls for reducing rates in the first six brackets of income tax by 0.3 to 0.5 percentage points.

The total impact of the regulation on public revenues is calculated as approximately 400 million euros.

Which tax brackets will change?

Under the government's proposal, the rate in the first IRS tranche would drop from 12.5 percent to 12.2 percent.

A 0.5 percentage point reduction is foreseen for the second, third, fourth and fifth tranches.

The rate in the sixth tranche will decrease from 34.9 percent to 34.6 percent.

These are the rates applied to tax brackets. No single rate is applied to the entire gross salary of the employee.

The tax cut concerns 2026 revenues

The important feature of the proposal is that it was prepared for 2026 revenues.

The government plans to reflect the effect of the tax cut on the withholding tax tables in November and December, instead of leaving it only to the annual IRS showdown to be held in 2027.

Therefore, the budget impact of the regulation is expected to emerge in 2026.

Why is 400 million euros not the new cost of OE2027?

According to the budget calculations provided by ECO, the impact of the extraordinary IRS reduction of approximately 400 million euros is aimed to be reflected in the accounts for 2026.

On the other hand, approximately 401 million resulting from the tax bracket and special discount updates previously accepted in the 2027 budget. There is a separate income loss of euros.

These two amounts do not represent the same tax measure.

How much will it be reflected in the salary?

The net amount that will be received by the employee does not depend only on the change in the tax rate.

Gross wage, marital status, number of dependents, withholding tax table and other tax factors change the result.

Therefore, it would not be right to give a fixed monthly income figure for everyone.

Additionally, monthly withholding deductions and annual final IRS burdens are not the same concept.

Is the discount finalized?

As of the morning of October 8, the confirmed stage is the Government's bill proposal and the Parliament discussion.

They should not be presented as finalized tax rates without further verification that all provisions of the proposal have been accepted, published and come into force.

Resources

ECO — Salomé Pinto, October 7, 2026

eco.sapo.pt