Your November payslip in Portugal will look generous. The income tax cut behind it is smaller
Portugal's cabinet approved the decree-law cutting IRS rates in the first six brackets on 29 October, backdated to 1 January. November withholding on wages and pensions is halved, which for many people advances more money than the cut is worth. The difference is settled in the 2027 tax return.
This year’s income tax cut in Portugal is now law in all but the signature. On Thursday 29 October the Council of Ministers approved the decree-law lowering IRS rates in the first six brackets, backdated to 1 January 2026. The government says almost three million households benefit and puts the cost at 400 million euros.
When cabinet first signed off the idea in September, it still needed a vote in parliament. Parliament has since granted the authorisation, and this decree is what puts it into effect. By the government’s count it is the sixth IRS cut since April 2024.
The new rates
Bracket one falls from 12.5% to 12.2%. Bracket two goes from 15.7% to 15.2%, bracket three from 21.2% to 20.7%, bracket four from 24.1% to 23.6% and bracket five from 31.1% to 30.6%. Bracket six drops from 34.9% to 34.6%. Nothing changes from bracket seven upwards.
Because the tax is progressive, higher earners gain too: everyone’s income passes through those first six slices. But there is a ceiling. Even on a big salary the annual saving comes to roughly 170 euros.
Why November flatters
The money arrives first through withholding. A Finance Ministry order published on 14 October says only half of the tax the January tables would take is withheld from wages and pensions paid between 1 and 30 November, including a Christmas bonus paid that month. Residents of the Azores and Madeira are left out, as is anyone above the second-highest withholding band, around 20,000 euros gross a month. December goes back to normal.
Take a single person with no dependants on 1,500 euros gross. Normally 168 euros a month is withheld. In November it is 84, and the same on the Christmas bonus. That is about 168 euros more in hand that month.
The rate cut itself is worth a lot less on that salary. Running it ourselves on 14 payments after the standard deduction, the year’s tax falls by roughly 70 euros. The other 100 or so is tax that simply was not withheld, and it gets squared up in the spring 2027 return, as a smaller refund or a bill.
That is not a trick. It is the route the government chose to hand back in one go what was over-withheld since January. It is just worth not spending all of November as if it were a raise. The decree now goes to the President for promulgation before it is published in the Diário da República.
Illustration: Tugadaily
