Wages and pensions: new withholding tax model for the 2nd half of 2023
From 1 July 2023, a new IRS withholding model will apply for income from dependent employment (Category A) and for those receiving pensions (Category H).
The big change for most contract workers and pensioners is that they will receive more money at the end of each month. In the context of the whole year, there are no changes in the income to be received.
According to the announcement on the Government Portal, these changes have two objectives:
- To ensure that an increase in the worker's gross salary corresponds to an increase in the net salary at the end of the month (in certain cases the change of step caused a monthly reduction in the net salary, which was then compensated for in the annual reimbursement);
- Ensuring that at the end of the year there are no very large differences between the IRS that the taxpayer has already paid to the State and the IRS that is calculated when the Model 3 tax return is submitted.
So this increase in net monthly income means that many taxpayers will receive a smaller annual refund when they file their tax return next year.
The withholding tax is the part of the taxpayers' income that is given to the Portuguese Tax and Customs Authority (IRS) to pay the IRS according to the IRS withholding tables.
You can learn more about this new withholding tax model in Circular Letter No. 20257 of June 20, 2023 from the Tax and Customs Authority.
Source: Portal do Governo
