s of July 1st, 2023, a new model of income tax withholding tables comes into force in Portugal. The new tables reflect the adjustment of withholding tax rates in a marginal rate logic, avoiding situations of regression, in which increases in gross monthly remuneration lead to a decrease in net monthly remuneration.
But what exactly does this mean? How will it impact taxpayers' disposable income at the end of the month? Will I be paid more? And deduct less? Will I receive less money back or pay more income tax the following year?
If these are some of the doubts you have on this topic, keep reading this article and clear them up.
When do the withholding tax tables change?
In 2023, there are different withholding tax rates in each of the semesters. The withholding tax rates in force in the first half of the year were already adjusted in April and changed to new rates in May and June. This was the model followed until the end of June.
However, from July 1st, the withholding tax tables for the second half of the year will come into effect, which will continue the progressive adjustment between withholding taxes and the amount of tax payable. The goal is to "avoid situations in which, due to an increase in remuneration, the application of a withholding tax rate would result in a lower monthly net income than that previously obtained", explains the Portuguese Tax and Customs Authority.
This new model follows a marginal rate logic, which is carried out by combining the application of a rate on monthly income with the subtraction of a portion to be deducted, similarly to what happens in the annual tax assessment.
It should also be added that large families (with three or more dependants) will benefit from an additional reduction of one percentage point in the maximum marginal rate corresponding to the bracket in which they belong, while the portion to be deducted and the additional portion to be deducted per dependant remain unchanged.
Will my net salary increase with the new tables?
For most workers, these new tables represent a small increase in their monthly net salary. If the withholding tax rate applied to your bracket lowers, your employer will deduct less for your personal income tax and, consequently, your monthly net salary will increase.
To find out what your net salary will be for the second half of the year, we recommend that you use Coverflex's net salary calculator for the second semester of 2023.
Will I pay less tax?
Yes, less tax will be withheld each month from employees.
However, this likely increase in monthly net income - through lower tax withholding - does not mean that your net salary has actually increased or that you are actually paying a lower amount of personal income tax at the end of the day.
At the end of the year, will I receive less money back or pay more income tax?
By withholding less tax, the net monthly salary increases, but the final tax assessment is made the following year when filing the personal income tax return. Therefore, those who receive more net monthly salary due to the decrease in the withheld amount will receive less money back the following year, or they might even have more tax to pay. So, both options are possible.
It should be noted, however, that the calculations of the final tax amount always take into account the personal and family context, including other income subject to personal income tax, as well as deductions resulting from expenses related to housing, health, education and other household deductible expenses in 2023.
What does the withholding rate applied depend on?
The withholding rate applied to each worker depends firstly on the amount of income earned. But it also depends on the type of income (employee or self-employed), the family situation (marital status, with or without children, number of dependants), the disability situation and the place of residence (income in mainland Portugal and in the Autonomous Regions do not have the same withholding tax).
Check here the new tables applicable in mainland Portugal, Madeira and the Azores.
