Portugal workers and pensioners to pay half their income tax withholding

In mainland Portugal, workers and pensioners will see a temporary increase in their take-home pay in November, with income tax withholding cut by 50 percent for one month under a measure announced by the Government.

The decision was confirmed in a dispatch published in the Diário da República on Wednesday, 7 October, signed by Finance Minister Joaquim Miranda Sarmento.

As reported by ECO, instead of introducing revised monthly withholding tables, the Government has opted to halve the tax deducted from eligible earnings under the existing rules.

This reduction will also apply to Christmas bonuses paid in November, as Prime Minister Luís Montenegro previously indicated.

For example, a single employee earning €1,500 gross per month will have €84 deducted for IRS in November, compared with the usual €168. Calculations by ECO suggest this will raise their net monthly salary to about €1,250, and the same reduction will apply to their Christmas bonus.

However, the relief will be temporary, as full withholding rates will return in December, meaning workers should not expect the higher take-home pay to continue into the final month of the year.

Who qualifies for the reduction?

The measure applies to workers and pensioners whose income falls below the upper limit of the penultimate bracket in the applicable withholding tables.

Those earning above that threshold will continue to pay the full amount of withholding tax in November.

The precise limits depend on an individual’s family circumstances, as single employees earning more than €20,221 gross per month will not qualify for the reduction, while the threshold for married employees is €20,468.

For pensioners, the limit is approximately €18,000 per month.

This measure also applies only to residents of mainland Portugal.

Residents of the Autonomous Regions of Madeira and the Azores will not benefit from the temporary reduction.

Lower income tax rates

This adjustment follows the Government’s extraordinary reduction in personal income tax (IRS), which covers the first six income tax brackets.

The revised rates decreased by 0.3 to 0.5 percentage points, with the first bracket falling to 12.2 percent, as the second to fifth brackets now stand at 15.2 percent, 20.7 percent, 23.6 percent and 30.6 percent, respectively.

Meanwhile, the sixth bracket was reduced to 34.6 percent.

The lower rates also benefit taxpayers in higher brackets on the portions of their income taxed at the reduced levels because Portugal operates a progressive income tax system.

Furthermore, the Government has chosen a different approach to implementing this year's November relief.

In previous years, similar mid-year tax cuts involved issuing new withholding tables and requiring employers to update their payroll software, but this time the existing tables remain in place, with the amount due simply halved for one month.

The dispatch confirms that the standard withholding tables approved in January will apply again from 1 December 2026.

Relief proposals

This temporary measure for November could be followed by additional savings next year under the Government’s proposed State Budget for 2027, submitted to Parliament on Thursday, 8 October.

The proposal includes adjustments to income tax brackets, the specific deduction and the minimum subsistence threshold, which could further reduce the tax burden on households.

According to EY simulations, a single person earning €1,500 per month could save around €37 under the proposed changes, while someone earning €10,000 per month would save more than €689.

This budget proposal must still pass parliamentary approval.

The first general vote is scheduled for 28 October, followed by detailed consideration, with the final overall vote planned for 24 November.

Until the proposal is approved, the additional savings for 2027 remain subject to the outcome of that process.