The measure, which also applies to Christmas bonuses paid during November, is designed to give households an immediate benefit from reductions to personal income tax, known in Portugal as IRS.

The changes follow the publication of Decree-Law No. 212/2026, which reduces tax rates across the first six income brackets for earnings received during 2026.

Although the new rates apply retrospectively from January 1, the government has chosen to concentrate part of the benefit in November rather than leaving taxpayers to wait until their annual tax assessment in 2027.

For eligible workers, this means less income tax will be deducted from their November salary, increasing the amount they receive in their bank account.

The reduction applies to the amount withheld for IRS, not to the employee’s gross salary or other deductions, such as Social Security contributions.

How much will workers save?

Under the temporary arrangement, employers and pension providers will generally withhold only half the IRS that would otherwise be deducted under the applicable monthly withholding tables.

For example, someone whose normal monthly IRS withholding is €200 would have €100 withheld in November, leaving an additional €100 in take-home pay, assuming their other circumstances remain unchanged.

The measure also covers Christmas bonuses paid during November. These bonuses are subject to separate withholding calculations, meaning the temporary reduction can apply to both the regular monthly payment and the Christmas bonus.

The precise benefit will depend on each person’s income, household circumstances and usual tax deductions.

Not everyone will receive an increase. Workers whose salaries are already below the threshold for IRS withholding will see no difference because they do not normally have income tax deducted.

The government has also excluded certain high-income earners from the temporary reduction.

According to the published withholding rules, the measure does not apply where monthly income exceeds the upper limit of the penultimate withholding bracket. This generally affects employment income above approximately €20,000 per month and pensions above approximately €18,000.

New income tax rates confirmed

The legislation reduces the standard IRS rates in the first six taxable income brackets by between 0.3 and 0.5 percentage points.

The first bracket falls from 12.5% to 12.2%, while the second decreases from 15.7% to 15.2%.

The third and fourth brackets fall to 20.7% and 23.6%, respectively, with the fifth reduced to 30.6% and the sixth to 34.6%.

Rates in the three highest brackets remain unchanged at 43.1%, 44.6% and 48%.

Because Portugal uses a progressive income tax system, the reductions can also benefit taxpayers whose earnings place them in higher brackets. The lower rates still apply to the relevant portions of their taxable income.

The new annual rates and November’s temporary withholding adjustment are separate measures. A 50% reduction in monthly withholding does not mean that an individual’s final annual IRS liability has been cut in half.

What happens in December?

The special withholding reduction applies only to qualifying payments made or made available between 1 November and 30 November 2026.

From December, the ordinary withholding tables will apply again, meaning employees and pensioners should not expect the same temporary increase in their take-home payments.

The timing of payment matters. A Christmas bonus paid in December, for example, will not qualify for the November-only reduction.

The Ministry of Finance confirmed the arrangement in October, before the legislation reducing the annual tax rates was formally published.

Under the official rules, employers that fail to apply the November adjustment may correct the withholding in subsequent payments up to the end of December.

There is also an important consideration for taxpayers expecting an IRS refund next year.

Monthly withholding represents an advance payment towards the final annual tax bill. Reducing that advance may result in a smaller refund, or a higher amount to pay, when the Tax Authority calculates the tax due on 2026 income.

The outcome will depend on each taxpayer’s income, deductions and total withholding throughout the year.

Employees can check their November payslip to see how much IRS has been withheld and compare it with previous months. Those who believe the adjustment has not been applied correctly can request clarification from their employer’s payroll department.


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