The changes to the IRS for 2025 promise an increase in disposable income for most workers and pensioners.
The IRS has undergone a number of changes, introduced through the OE 2025, the effect of which will be partially felt in the coming months, through withholding tax, and with the final adjustment scheduled for when the annual tax return is submitted.
In addition to the extension, on several fronts, of the IRS Jovem, there will be several updates in 2025, all of which will have an impact on the net income of workers and pensioners.
Updating the brackets – The limits of the nine taxable income brackets will be updated by 4.6 per cent, which guarantees an increase in the value of the ‘slice’ of income on which each of the general tax rates is levied. This update also prevents those with salary increases of up to 4.6 per cent from seeing their tax bill increase.
Extension of the IRS Jovem – The IRS Jovem is nothing new, but the model that will come into force from January introduces several changes on various fronts. Firstly, the number of years during which people can benefit from this scheme, which grants a tax exemption to workers up to the age of 35, is increased from five to 10 – anyone who turns 36 by the end of 2025 is no longer eligible, and so on.
All people up to the age of 35 will be eligible, regardless of their level of academic qualifications and course of study, and the limit on the amount of income exempt from IRS will also increase, to the equivalent of 55 times the value of the Social Support Index (which in 2025 will rise to 522.5 euros), in other words, around 28,000 euros a year.
The exemption is 100% in the 1st year of income, 75% from the 2nd to the 4th year, 50% from the 5th to the 7th year and 25 per cent for the remaining three years.
Extension of the specific deduction – The specific deduction had been frozen at 4,104 euros for several years, having been updated for the first time in 2024 through a set of changes to the IRS approved by parliament.
In 2025, its value will increase again as the OE2025 determines that this deduction will be equivalent to 8.54 times the IAS.
The specific deduction is granted automatically to all pensioners and workers, and is higher for those whose 11 per cent Social Security deduction results in a higher amount.
Lower withholding rate for ‘green receipts’ – Unlike for employees and pensioners, the IRS withholding rate for ‘green receipts’ is always the same, regardless of income. Until now, the withholding rate was 25% and in 2025 it will be 23%.
SMN continues to be exempt from IRS – The amount of income exempt from IRS (known as the minimum for existence) will once again follow the rise in the national minimum wage, ensuring that those earning up to 870 euros a month (12,180 euros a year) will not pay tax in 2025.
Meal allowance in pay card form – The value of the meal allowance paid in pay card form, exempt from personal income tax and social security contributions, will rise from 9.60 euros in 2024 to 10.20 euros in 2025, a measure that resulted from the tripartite Social Dialogue agreement. The amount of this allowance paid in cash free of IRS will remain at six euros.
Withholding tax on overtime work – Remuneration for overtime work will now be subject to a withholding tax equivalent to 50% of the rate corresponding to the withholding tax on the employee’s monthly salary. Under the previous system, this 50% deduction was only applied from the 101st hour of overtime work.
Performance and productivity bonuses – Productivity, performance or profit-sharing bonuses, which are not regular in nature, up to an amount equal to or less than 6% of the employee’s basic salary are exempt from IRS and the Single Social Tax (TSU), but on the condition that the company makes a minimum increase of 4.7% in the basic salary of employees earning an amount equal to or less than the company’s (annual) basic salary at the end of the previous year; that there is an overall increase of 4.7% and that it is covered by a collective labour regulation instrument signed or updated less than three years ago.
Withholding tax – As has been the case, new IRS withholding tax tables will apply in 2025, designed to accommodate the changes in tax.
January 2025
