2019 State Budget: Know How Your IRS Will Look

The proposed 2019 State Budget contains no major changes to the IRS. But it brings some changes that deserve highlighting. Find out if the new rules of this tax will affect you.

New deadline for filing income tax, overtime and remuneration from previous years with autonomous withholding and special tax regime for emigrants. These are the main news in IRS that appear in the document.

No Stirred IRS Levels and Rates

New deadline for filing income tax, overtime and remuneration from previous years with autonomous withholding and special tax regime for emigrants. These are the main news in IRS that appear in the document.

Let's start with what doesn't change. The proposed 2019 State Budget does not provide for an update of the IRS ranks, as has been customary, nor a change in the final tax rates. Thus, for most taxpayers, the IRS of 2019 will be identical to that of 2018, maintaining the tax burden.

However, without upgrading the tiers, taxpayers who are in the upper tiers of the tier and who have salary increases next year run the risk of jumping to the next tier, thus seeing the 2019 IRS worsened. But this effect will only be felt in 2020.

IRS Relief 2019

Although there are no changes in the IRS tax brackets and rates, taxpayers will feel relief in 2019 through a measure set out in the 2018 State Budget. The focus is on reducing the IRS tax brackets from seven to five. A change that was not fully reflected in the 2018 withholding tables. That is, the withholding rates have not dropped sufficiently. As a result, since January, the Portuguese are withholding more tax than due. This extra IRS anticipation will lead, in 2019, to a higher refund or lower additional tax payable.

The 2019 withholding tables, which will be released in January, are expected to be adjusted again to fully reflect the restructuring of the IRS tiers. Next year, taxpayers will bring more money home later in the month.

Extended IRS Delivery Time

In 2019, the tax return is filed between April 1 and June 30. So far, the IRS filing deadline was April 1 through May 31. There are also new deadlines regarding collection deductions. The TA has to determine the amounts of collection deductions by February 25. It is currently February 15th. Taxpayers are thus left with ten days to check their invoices. As a result, these amounts should be made available by March 15 and not end February. Lastly, taxpayers will be able to complain about the calculation of deductions by March 31. The current deadline is March 15.

Overtime with standalone withholding

Earnings overtime and remuneration from previous years are subject to withholding tax. This means that these amounts no longer add to the base salary of the month in which they are paid to determine the withholding tax to be applied.

Thus, when overtime is paid, the withholding tax is the same as the base salary received in the month concerned.

In the case of remuneration from previous years, the rate to be applied corresponds to the amount paid divided by the number of months to which it relates. And it is applied to all those remunerations.

The purpose of this measure is to prevent workers from being paid a higher withholding tax in the month in which overtime or remuneration from previous years is paid. Note that as monthly income grows, so does the withholding rate.

However, the decrease in withholding tax will lead to a lower refund, or even an additional payment of IRS, the following year after filing the tax return.

50% IRS Emigrant Discount

Citizens who emigrated between 2011 and 2015 and returning to Portugal in 2019 or 2020 will be entitled to a special tax regime. A measure within the Return Program. For five years, these taxpayers will not pay IRS on half of their income. This regardless of the value or activity performed. This measure applies to dependent work income and business and professional income. Also the withholding tax must correspond to half of the income paid.

To benefit from this scheme emigrants must fulfill a set of conditions:

• They have not resided in Portugal in any of the three years prior to their return. That is, between 2015 and 2019 or 2016 and 2020;
• Have been resident in Portuguese territory before December 31, 2015;
• Have their tax status regularized;
• Do not apply for non-habitual residents.

Families with Inland Tax Benefits

In 2019, expenditure on education and training and home rents in the interior of the country qualifies for IRS bonuses.

Families with students in inland schools will be able to deduct 40% of education and training costs, up to a maximum of € 1,000. This, as long as the difference with the general scheme - 30%, up to 800 euros - relates to the education and training expenses of those students.

Inwardly moving households will also see their rent deduction increased over three years: 15% to a maximum of € 1,000. The general scheme provides for a deduction of 15% of rent costs, up to 502 euros.

More IRS-exempt taxpayers

The so-called minimum existence - the income limit to which pensioners and workers are exempt from personal income tax - will increase again in 2019. This means that more families will be totally or partially exempt from personal income tax.

In the State Budget for 2018 it was defined that the minimum of existence would be linked to the Social Support Index (IAS). And that would correspond to 1.5 IAS, multiplied by 14 months. Until then, it was a fixed value.

In 2018, the minimum existence is 9 006, 9 euros. By 2019, it should rise to 9 153.9 euros. This is based on the assumption of an increase in IAS of around 1.65%.