Lisbon, Oct. 3, 2025 (Lisboa) - The limits that define the values of each income bracket in the tax table will be increased by 3.51% in 2026 in the proposed State Budget, according to a decree published today in the Diário da República.
Since 2024, the income tax Code has provided for an automatic annual update of the brackets - not the rates, but the amounts that define each of the nine levels of taxable income - based on "the rate of change in the Gross Domestic Product [GDP] deflator and the rate of change in the Gross Domestic Product per worker".
The legislation obliges governments to publish a decree with the value of the update, calculated on the basis of the figures "published by Statistics Portugal in the quarter immediately preceding the presentation of the draft State Budget Law".
This percentage was announced on Friday, following the publication in the Diário da República of the decree provided for in the law, which will take effect in an update to the income tax table for 2026.
According to the decree, signed by Finance Minister Joaquim Miranda Sarmento, the coefficient (the one that results from the GDP deflator and the variation in GDP per worker) is 1.0351, which means that the values that define the brackets will be updated by 3.51%.
"The rate of change, in percentage, of the Gross Domestic Product Deflator (DPIB) for the 2nd quarter of 2025 compared to the same quarter of 2024 is equal to 3.995%," while "the rate of change, in percentage, of the Gross Domestic Product per worker (GDP/t) for the 2nd quarter of 2025 compared to the same quarter of 2024 is equal to -0.4627%," reads the Diário da República.
As a result, according to Lusa's calculations based on the decree, the first IRS bracket will cover taxable income of up to €8,342, instead of only up to the current €8,059.
The second bracket will cover income above €8,342 and below €12,587, whereas until now the second bracket rate covered amounts above €8,059 up to €12,160.
The third tier will now cover amounts between €12,587 and €17,838, instead of over €12,160 up to €17,233.
The fourth level will cover amounts above €17,838 and will go up to €23,089.
In the fifth, the corresponding rate will cover amounts above €23,089 up to €29,397.
The sixth bracket will start at amounts above €29,397 up to €43,090.
The seventh will cover amounts above €43,090 up to €46,566.
The eighth will start at €46,566 up to €86,634.
The new level will begin to apply to incomes above €86,634, whereas the current last step starts at €83,696.
The figures refer to taxable income, not gross income figures, which are usually higher than those used as a reference for applying the rates, because specific deductions must be subtracted beforehand.
In the decree, the finance minister points out that the new rule requiring the annual updating of the brackets "prevents nominal increases in income, without a corresponding increase in real contributory capacity, from leading to a hidden increase in effective taxation under the IRS, promoting greater tax justice and stability in the taxation of the income of natural persons".
The change will need to be included in the 2026 State Budget bill (OE2026), which the government must submit to Parliament by 10 October.
In the same table, it will also need to include changes to the IRS rates to be applied between the 2nd and 5th brackets, as required by Law 55-A/2025 of 22 July.
In the legislative amendment approved by parliament last July, in which parliament lowered the personal income tax rates from the 1st to the 8th bracket to be applied to this year's income in 2024, the law expressly provided that, "in the State Budget for 2026, the Government proposes to additionally reduce the marginal rates from the 2nd to the 5th bracket by 0.3 percentage points".
When it does so, it will take into account the new configuration of the brackets, updated according to the 3.51% rate.
According to article 68-B of the IRS Code, the government had until 20 September to publish the decree. However, the document published today in Diário da República was only signed by the Minister of State and Finance, Joaquim Miranda Sarmento, on 30 September, since, as the government states, the data needed for the calculation was only known later, "in the national accounts statistics released by INE on 23 September".
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