ou don't quite understand the amount of Personal Income Tax (PIT) you need to pay in Portugal? Have you received a job offer and would like to understand your net salary better?
For starters, it is important to understand that the PIT is the Personal Income Tax, which means that there is a tax applied to the income of every citizen, except in some very specific cases foreseen by the law. Thus, there is a rate, that varies according to some factors, that will be applied to your income (monthly wage and other ad-ons) and that you will need to pay to the government. Currently, many companies also offer flexible benefits, a way to complement fixed salaries, boosting employee income and saving the company money.
To make it less theoretical and more practical, let's see how the taxation of PIT works on different types of income.
What is the amount of PIT applied to my salary?
The amount of PIT applied to your salary will depend on some factors. To figure out the rate of PIT applied to what you earn, in case you work in either the public of the private sector, you first need to check the tables for withholding tax in income tax in 2022.
Therefore, to find the rate that corresponds to your situation in the withholding tax tables, you must know the following data:
- The amount of your gross salary;
- The tax framework, that is, the composition of your household (if and how many dependents you have, if you're married and, if so, if both you and your partner pay income tax);
- The amount and method of payment of your meal allowance (if you get it in cash and if the amount exceeds €5.20 or if you get it in card and the amount exceeds €8.32).
For example, if you have a gross monthly income of €1000, are single and have no children, the rate applicable to your income is 11.3%. In other words, €113 goes to the government. If you receive €1000 but are married and have a child, the rate is 8.6% (€86). These are just two of many possible scenarios. It is also important to mention that we are just talking about income tax and that the Social Security tax of 11% is also applied to your income.
Regarding the meal allowance, if the amounts are higher than those identified above, the remainder will be subject to taxation. That is, if you receive the meal allowance on a card and your company gives you €8.50 per day, €8.32 is exempt from PIT, while the remaining €0.18 is included in the PIT calculations.
Recalling the example above, of a single person with a base salary of €1,000, a meal allowance of €8 on a meal card causes taxable income to increase to €1,008.14, which raises the PIT rate to 12.10%. This increase of €8.14 corresponds to the €0.37 mentioned above x 22 days.
Regarding other incomes, the majority is subject to PIT taxation, and from 2022 onwards, gross monthly income below €710 is exempt of tax. This amount is based on the national minimum wage in Portugal, which in 2022 increased to €705.
You can also use Doutor Finança's 2022 Net Salary Simulator to test the multiple scenarios.
How is PIT calculated for income other than the "base" one?
If you have income other than your base salary, such as overtime, travel allowance, bonuses or flexible benefits, it is important that you know that each of them is taxed differently.
Overtime
Overtime is not PIT exempt but has an autonomous withholding tax, that is, so that the employee is not penalised and pays more in the event of an increase in earnings, the withholding tax rate is, in this case, the same as that applied to the base salary.
Travel allowance
Regarding travel allowance, this is PIT exempt as long as ir doesn't exceed the limits defined by law:
- If you use your own car, the limit is €0,36 per kilometre;
- For national travel, the limit is €50,20 per day;
- When traveling abroad, the limit is €89,35 pr day.
Amounts that exceed these limits are subject to taxation.
Transport allowance
The transport allowance is subject to PIT taxation and, as a rule, the same rate as the one applied to salary applies.
Rewards
In what comes to rewards, the respective amount is also added to the salary and taxed together with it. And, in this case, the tax payable will depend on the total amount. If the base salary is €1000 and the reward is of the same value, the PIT rate in 2022 is 21.9%.
These are the most common items on a pay slip. But, nowadays, there are many solutions that complement the salary package that companies offer to employees.
Flexible benefits depend on each company and work as compensation beyond salary, promoting savings and offering other perks to improve quality of life, both personally and professionally.
What are flexible benefits and how do they work?
Simply put, flexible benefits are compensation solutions beyond salary. There are already several companies offering these solutions to their employees, in order to improve their experience.
One of the goals of flexible compensation is precisely to retain qualified talent. The most common benefits are life or health insurance, transport cards or childcare vouchers. But there is currently a diversification of benefits that cover health, well-being, training, family and even working conditions.
Each of the salary components is ruled by different logics in what comes to taxation.
Which flexible benefits are PIT exempt?
As a rule, this type of compensation beyond salary is Social Security exempt, but the same does not happen with PIT. It is therefore crucial that you know which salary components are subject to taxation.
Among the salary compensation items that are PIT exempt are the childcare voucher and the transport card.
Which benefits are subject to PIT taxation?
Most flexible compensation solutions are subject to taxation, mainly because we are talking about remuneration components.
These are some of the benefits that are subject to PIT taxation: education expenses for payment of schools or other education service for children from the age of 7 (that are at least on the first grade), gym and fitness centres expenses (among other expenses related to gym and fitness), expenses related to the education and training of the employee, medical expenses (for you of for your family), expenses with nursing homes or investment in a savings and retirement plan.
How does the PIT taxation work in what comes to benefits?
Flexible benefits are, as we have already mentioned, income. Therefore, when you receive this type of salary add-on, you will have to add the amount to the remaining income and that will be the amount to be subject to taxation.
So, if you receive €1000 as base salary and, in a given month, your company "offers you" a school voucher in the amount of €1000, in that month your PIT rate goes from 11.3% to 21.9%.
The big difference, in these cases, is that these flexible benefits are not subject to Social Security taxation, which means that you won't have to pay the 11% tax corresponding to Social Security in addition to the PIT rate (which is what happens with the base salary).
If you enjoy flexible benefits through solutions such as those offered by Coverflex, you first consume the amount attributed to you on the platform, and only later will they be subject to PIT taxation.
When we receive a job offer, it is natural that we have questions, especially if the company presents us with compensation beyond salary. It is therefore important to know how to estimate the net salary, what to expect and also how we can try to increase our liquidity when negotiating our working conditions.
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