The legislative proposal reduces rates for the 1st to 8th income brackets, bringing a cross-cutting tax relief across various income levels that the Government estimates at around 500 million euros.

The proposal provides for a reduction in tax rates for the 1st to 8th income brackets; however, the measure will also affect those in the 9th bracket and above, due to the progressive rule in the calculation of tax.

A proposal to amend the Government's proposal, presented by the PSD and CDS-PP, was also approved, which stipulates that “in the State Budget for 2026, the Government proposes to further reduce the marginal rates for the 2nd to 5th brackets by 0.3 percentage points”.

The approved IRS reduction proposal concerns income earned by taxpayers throughout 2025. According to the Government's initiative, the rate for the first bracket will fall from 13% to 12.5%, the second bracket will fall from 16.5% to 16%, the third bracket will fall from 22% to 21.5%, the fourth bracket will fall from 25% to 24.4%, the fifth bracket will decrease from the current 32% to 31.4%, the sixth bracket will decrease from 35.5% to 34.9%, the seventh bracket will decrease from 43.5% to 43.1% and, finally, the eighth bracket will decrease from 45% to 44.6%. The rate for the last income bracket remains at 48%.

Before the Government can change the withholding tax tables to reflect this decrease, the measure will still have to go to a final vote in the Assembly of the Republic, be submitted to the President of the Republic for approval, and, if enacted, be published in the Official Gazette.

Finance Minister Joaquim Miranda Sarmento says he will change the withholding tax tables as soon as he can, after the bill is approved, to reflect the reduction in taxpayers' pockets with retroactive effect from January this year.

“If all goes well, in August and September with the so-called retroactive payments and then, from October onwards, new tables that already reflect the reduction on a monthly basis,” he said in Brussels on 7 July, speaking to Portuguese journalists on arrival at the Eurogroup meeting.

As a rule, when there are changes to the IRS tax brackets, governments update the IRS withholding tables so that the monthly tax deduction made from employees' salaries and pensions is closer to the final IRS payable.