All about the new levels of the IRS

The IRS scales will be updated by 5.1% in 2023, according to the proposed State Budget for 2023 (OE2023), that the Government delivered this Monday, October 10, 2022, to the Assembly of the Republic. According to the proposal analyzed by idealista/news, the limit of the first taxable income bracket - which corresponds to gross income minus a specific deduction per taxpayer - increases from 7,116 euros per year to 7,479 euros, an increase of 363 euros compared to the current value. .

The next tier, with a rate of 23% and which is currently set between 7,116 and 10,736 euros, now applies to the fringe of income ranging between 7,479 euros and 11,284 euros. In the model proposed for 2023, the rate from this step still drops to 21%.

In practice, this means that those with an annual taxable income (deducted from Social Security discounts or 4,104 euros) of around 10,730 euros will not pay more tax in 2023 if they have a 5% salary increase.


"The Government proposes a reduction by two percentage points, from 23% to 21%, of the marginal rate of the second tier of IRS (and, as a result, reduces the average rate in the remaining tiers), which will allow the reduction of tax payable for more than two million households", says the report accompanying the budget proposal.

The limit for the 3rd and 4th brackets are respectively 15,992 euros (776 euros more than the current one) and 20,700 euros (1,004 more euros).
In the 5th and 6th brackets, on which rates of 35% and 37% apply, the increase in the maximum limit would be 1,279 euros (to 26,355) and 1,875 euros (to 38,632 euros).
In the 7th and 8th tiers (with rates of 43.5% and 45%, respectively), the upper limit rises to, in the same order, 50,483 euros and to 78,834 euros, this being also the value from which earnings ´jump´ to the 9th and last step and are subject to the highest IRS rate, which is currently 48%.
This update is in line with the salary appreciation of 2023 contained in the income and competitiveness agreement that the Government and the social partners signed this Sunday and aims to prevent workers with a 5.1% salary increase next year from paying more tax .

New model of retention tables takes effect from July
The new model of withholding tables for dependent work and pensions announced by the Government will come into effect from July next year, according to the Minister of Finance, Fernando Medina. The official was speaking at the presentation of the proposal for the State Budget for 2023 (OE2023), at the Ministry of Finance, when he indicated that the new model of IRS withholding tables will “replace the current model from July”, with no effects retroactive.

The State Budget points out a new model of withholding the IRS for income from dependent work and pensions, adapting the amounts paid monthly to the tax effectively due, providing that the measure will come into force in 2023 and reach three million people.

“During the year 2023, the payment systems for wages and pensions must be adapted to the new IRS withholding system […] in order to allow the application of withholding rates more appropriate to the taxable persons´ tax situation ”, refers to the OE2023 proposal, with the report accompanying the proposal noting that the current IRS withholding system is based on the application of a withholding rate (which varies depending on the level of income) on the entirety of the income tax. Yield.

This system means that at the threshold of the change in the income bracket, in which the rate increases, “situations of regressiveness occur, in which an increase in gross income is not reflected in an increase in net income in that month”. “Although these situations are corrected when submitting the annual income tax return (via IRS reimbursement), the reformulation of the withholding tax system will ensure that an increase in gross income always corresponds to an increase in net income, in the same period. month”, details the document.

To this end, during 2023, paying entities will have to adapt their salary and pension payment systems in order to apply the new withholding tables, which will change from a single rate model to a marginal rate model. , as in the calculation of the amount of IRS payable each year.

“Up until the time of payment or making available the income referred to in paragraph 1 [dependent work and pensions], the paying entities must present the effective monthly rate of withholding at source in the document which includes the value of the income and the respective withholding tax, which is calculated by the ratio between the amount withheld at source and the amount of income paid or made available”, provides for the proposed budget law.

*With Lusa

Source: Idealist