While most taxpayers will benefit from lower taxes, the exact amounts to be withheld from salaries and pensions are not yet available.

The drop in income tax this year stems from the State Budget (OE2026) that comes into force on 1st January, which includes three changes to the Personal Income Tax Code that led to an increase in the net income of workers and pensioners.

With the 2026 State Budget, there is a decrease in the rates for the 2nd to 5th income brackets by 0.3 percentage points, an update of the values that define the 9 income levels by 3.51% compared to 2025 (causing the rates for each bracket to start applying higher up the income scale), and an increase in the minimum subsistence level (a mechanism that guarantees a total exemption from income tax for those who receive the minimum wage and a partial reduction in income tax for those with earnings immediately above it).

Since income tax is an annual tax, the Federal Revenue Service will calculate the tax on all income earned throughout 2026, from January 1st to December 31st, based on income brackets.

Meanwhile, to reflect the reduction in the tax withheld each month, the Government will have to adapt the withholding tax tables applied to salaried workers and pensioners.

An official source from the Ministry of Finance confirmed to Lusa that the tables will be published this January, and it will then be up to the paying entities (private companies, public services, municipalities, IPSS [Private Institutions of Social Solidarity] and other entities, such as Social Security and the Caixa Geral de Aposentações [General Pension Fund]) to process this year's income according to the new monthly rates.

It is not yet known, however, whether the entities will be able to apply the new tables to January's salaries and pensions.

As a rule, when the tables are released after the first payroll of the year, the paying entities can correct the amounts in the following month.

To know what happens this year, we will have to wait for the decree that establishes the new tax tables.

With the 2026 State Budget, the rate for the second tax bracket falls to 15.7% (instead of the previous 16%), the rate for the third bracket increases to 21.2% (instead of 21.5%), the rate for the fourth bracket decreases to 24.1% (instead of 24.4%), and the rate for the fifth bracket remains at 31.1% (instead of 31.4%).

Although the reduction in tax rates only occurs in these four brackets, taxpayers in all brackets will experience a decrease in income tax, whether they are above or below, because of the various fiscal changes enshrined in the Budget.

In addition to the new rates and new bracket limits, the reference value for the minimum subsistence level rises to €12,880.

This ensures that taxpayers with an income up to the national minimum wage of 2026 (€920 gross per month) are fully exempt from income tax, like what happened to those who received the equivalent of the 2025 minimum wage (€870).

Since the calculation formula for this mechanism safeguards that taxpayers with an income immediately above €920 also benefit from a tax reduction – a partial exemption from the tax – those in the first bracket also experience a reduction in income tax even without a change in the rate.

Those in income brackets above the 5th tier will also experience an increase in net income because income tax is calculated progressively, and the rates applied to the 2nd, 3rd, 4th, and 5th tiers, reduced by 0.3 percentage points, also apply to these taxpayers.

According to simulations by the consulting firm PwC, carried out for Lusa when the Government presented the 2026 State Budget proposal on October 9th, the changes will increase the income of taxpayers in all tiers.