Starting this month, employees and pensioners will see a reduction in the amount of income tax deducted from their earnings.
Updated Withholding Tax Relief for 2025
From January 2025, employees and pensioners will benefit from reduced income tax deductions, reflecting changes in the IRS withholding tax tables as approved in the State Budget for 2025.
Key updates include:
Income ranges updated by 4.6%.
Minimum existence increased to €870 (no tax for earnings below this).
Specific deduction raised to €4,462.15.
Tax Relief Examples
Below is a summary of the monthly relief for different salary and pension levels:
Gross Monthly Income | December 2024 Deduction | January 2025 Deduction | Monthly Relief |
Salaries | |||
€870 (minimum wage) | €0.00 | €0.00 | €0.00 |
€875 | €25.74 | €1.09 | €24.65 |
€900 | €37.44 | €12.69 | €24.75 |
€992 | €75.89 | €55.84 | €20.05 |
Pensions | |||
Up to €992 | — | — | €30.00 |
The recent changes to pension taxation in Portugal indicate a more favorable environment for retirees earning modest pensions, as well as adjustments that benefit self-employed individuals. Here's a breakdown:
Pension Exemption: Retirees with monthly pensions up to €900 will remain exempt from withholding tax.
Adjusted Withholding for Pensions: Pensions above €900 will be taxed less than before. For example, a pension of €992 will now be subject to a tax deduction of €30.84, which is lower than the previous €61.06, resulting in a monthly relief of €30.22. A pension of €1,000 will have a monthly tax deduction of €37.45, providing relief of €23.45 compared to the previous setup.
Withholding Tax: The withholding tax is an advance payment to the state and will be reconciled in 2026. If more was deducted than necessary, retirees may receive a refund. If less was deducted, they might need to pay additional taxes.
IR Band Update: The tax brackets have been adjusted by 4.6%, which reduces the amount of tax due for certain income levels.
Self-Employed Tax Relief: The self-employed or "green receipts" holders will see a decrease in the withholding tax rate from 25% to 23%, which translates to a reduction in their monthly tax liability.
Here's a summarizing the recent changes to pension taxation and self-employed tax rates in Portugal:
Category | Old System | New System | Impact |
Pension Exemption | No exemption for pensions up to €900 | Exemption for pensions up to €900 | Retirees earning up to €900 are now exempt from tax |
Tax Deduction for Pension (€992) | €61.06 per month | €30.84 per month | Monthly relief of €30.22 for pensioners earning €992 |
Tax Deduction for Pension (€1,000) | €61.06 per month | €37.45 per month | Monthly relief of €23.45 for pensioners earning €1,000 |
Withholding Tax (Self-Employed) | 25% of income | 23% of income | Self-employed individuals (green receipts) benefit from a 2% tax reduction |
Tax Bands Update | No adjustment to tax bands | Tax bands updated by 4.6% | Lower tax liability for certain income brackets |
Tax Reconciliation | N/A | Tax settled in 2026 for over/underpayments | Possible refund or additional tax payment based on 2026 settlement |
These changes reflect the government's effort to provide tax relief to lower-income retirees and self-employed individuals, although the final settlement of taxes will occur in 2026, when any discrepancies in withholding will be addressed.
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