Personal income tax rates to drop in 2021

Portugal’s IRS (personal income tax) retention rates for 2021 will reduce by €0.69 and by €7 the amount deducted for a salary of €700 and €1,750 respectively, the simulations of the Ministry of Finance said.

The decree with the IRS withholding tax tables that will be in force over the next year was published on Thursday in the state journal, reflecting an increase from €659 to €686 in the value of salaries and pensions from which IRS is to be deducted, and a fall in the rates applicable to the various income brackets of dependent employment.

On the pensions side, the withholding rates have been updated at the lowest levels to maintain the net income level of pensioners benefiting from the extraordinary increase in the lowest pensions.

A series of simulations carried out by the Ministry of Finance said that a single person, without dependents, who receives a monthly salary of €685 will now be exempt from this monthly deduction at source, ‘saving’ €0.69 compared to the amount deducted this year. At the end of the year, a taxpayer with this profile will have earned an additional €9.59.

If the salary is €1,100 per month, the saving in the withholding tax will be €2.20 per month or €30.80 per year in 2021. These figures rise to €7 per month and €98 per year respectively if the salary is €1,750 gross.

In the case of a couple where only one of the members works, without dependents, the monthly deduction at source will fall from €16.80 in 2020 to €16.10 in 2021 on a salary of €700.

If this couple earns €1,400, the monthly withholding tax will fall from €1.40 to €99.40.

Couples in which both members work and without dependents have a profile of monthly IRS deductions similar to those of a single person, without dependents, so that if their salary is €1,750 per month, they will now pay €7 less per month (or €98 per year).

With a gross salary of €3,100, the couple will see their withholding tax fall from 26.5% to 26%, which means that in 2021, instead of paying €821.5 of personal income tax per month, they will now pay €806.

In this case, the increase in monthly net income will be €15.50 which, at the end of the year, will result in €217.

The withholding of personal income tax by employees and their dependents acts as a tax deferral and the accounts will be settled in the following year with the submission of the annual tax return.