IRS Set to Reduce Refund Amounts
The Portuguese government has announced a plan to bring monthly tax withholdings more closely in line with actual tax liabilities, starting with August salaries. This move aims to provide immediate financial relief to workers, but it may have some implications for taxpayers, particularly when it comes to refunds and reconciliation in 2026.
Under the new measures, a worker earning a gross monthly salary of €1,136 will not have to pay IRS in August and September, while those earning €3,000 will experience a net gain of €610 in these two months. However, the increase in October will shrink to €12 per month for those earning €3,000.
Cláudia Reis Duarte, Secretary of State for Tax Affairs, emphasized that people will receive the money in advance, rather than waiting for the refund. For those earning a gross salary of €1,500, simulations show a net salary rise from €1,149 (in July) to €1,327 (in August and September), but a fall again to €1,154 in October.
However, there are some potential drawbacks to the tax relief plan. Social Security pensions processed by August 8 may not be updated in time for the payment. Moreover, the impact of this tax relief may lead to excess amounts withheld in the first quarter of the year, which could result in lower refunds or even tax payments due in 2026.
Paula Franco, president of the Order of Certified Accountants, warned of the potential for low refund values in 2026, urging taxpayers to prepare for unpleasant surprises in their 2026 income tax returns. The government is allowing adjustments to be made up until December, in case of delays in the application of the new tables.
It's important to note that these changes primarily apply to the Portuguese tax system and may not have the same impact on other countries' tax systems. Additionally, the broader tax laws under the "One Big Beautiful Bill" primarily focus on tax credits and deductions but do not specifically alter withholding or refund processes for taxpayers in this timeframe.
In conclusion, the tax relief measures in August and September 2025 are intended to provide immediate financial relief to workers, but taxpayers should be aware of potential implications for refunds and reconciliation in 2026. It's recommended to consult with a certified accountant or tax advisor for personalised advice.
Personal finance planning becomes crucial for taxpayers in the wake of the tax relief measures, given the potential for lower refund values in 2026 due to excess withholding in the first quarter of 2025. Taxpayers are advised to prepare for potential surprises in their 2026 income tax returns and consider seeking professional advice from a certified accountant or tax advisor for personalized guidance.
