The changes to the IRS proposed by the Government in the State Budget for 2026 will increase the income of taxpayers at all levels. The middle class is the least favored by the tax cut.
The calculations made by the consultancy PwC for Lusa allow us to compare the IRS that applies to salaries and pensions in 2025 and the IRS that will be in force in 2026 in accordance with the State Budget law proposal for 2026 (OE2026) delivered this Thursday to parliament by the Government.
“In 2026, there will be a generalized reduction in the IRS compared to 2025 and, consequently, an increase in net income”, he states Joana Garridofrom PwC’s tax team, explaining that the relief covers all levels and that this effect arises from all the measures envisaged, which do not just include reduction in rates in four income levels (from 2nd to 5th).
In the simulations, PwC takes three measures into account: the 3.51% update in the amounts that define the income brackets, the reduction in rates from the 2nd to the 5th brackets by 0.3 percentage points compared to the current percentages and the increase in the minimum wage (the mechanism that guarantees a total exemption from tax for those who receive the minimum wage and a partial reduction for those with a salary immediately above that value).
The rate for the 2nd bracket drops from 16% to 15.7%, the 3rd bracket drops from 21.5% to 21.2%, the 4th bracket drops from 24.4% to 24.1% and the 5th bracket drops from 31.4% to 31.1%.
The simulations allow us to see the impact of these changes at different levels, assuming a static scenario in which there are no salary increases, that is, assuming that the 2026 salary will be the same as this year’s.
Let’s look at examples:
Single worker without children
A single worker without children who currently receives 920 euros gross per month pays 315 euros in tax (IRS 2025). Next year, as the salary will correspond to the 2026 minimum wage and the IRS exemption will extend up to that salary band, this taxpayer will not pay IRS next year, which means that the net gain from one year to the next will be those 315 euros per year.
In the same situation, a worker who receives 980 euros (1st income tax bracket) will also experience a reduction in tax of 315 euros. Instead of paying 693 euros, you will deliver 378 euros. Although the IRS rate does not change in the 1st bracket (still 12.5%), this taxpayer also feels relief, as a result of the increase in the minimum existence and the update of the value that defines that 1st income bracket.
A single worker without children who receives 1,100 euros gross per month (2nd bracket) will benefit from a reduction of 145 euros per year in tax (instead of paying 1,218 euros, they will pay 1,073 euros).
In another example, that of a couple with two children, each of whom has a gross monthly salary of 1,300 euros (3rd bracket), the IRS for both of them reduces 99 euros (instead of 2,005 euros, they will pay 1,906 euros). In the case of a single person without children, with an identical salary, the reduction is 50 euros (the IRS reduces it from 1,753 to 1,703 euros).
In a salary of 1,800 euros (4th step), the improvement in income for a single taxpayer without children is 88 euros (the IRS drops from 3,359 to 3,271 euros). The cut is 176 euros for a couple with two children in the same salary situation (there is a reduction in tax from 5,219 to 5,043 euros).
Other examples
For a couple with two children who are in the 5th bracket, where each receives 2,250 euros gross per month, the reduction in IRS for both will be, together, 324 euros (IRS goes from 8,956 to 8,632 euros). For a single taxpayer without children at the same salary level, the cut will be 162 euros (the tax goes from 5,228 to 5,066 euros).
For a single taxpayer who receives 3,000 euros per month (6th bracket), the net increase will be 204 euros (the IRS drops from 8,790 to 8,586 euros). For a couple with two children, where each member receives 3,000 euros, the joint reduction is 408 euros (the sum of their IRS income decreases from 16,079 to 15,671 euros).
In the case of a salary of 3,500 euros (7th bracket) of a single taxpayer, the relief will be 323 euros (the IRS drops from 11,126 to 10,803 euros).
A single taxpayer without children who receives 4,500 euros gross (8th step) will experience a reduction in IRS of 347 euros (instead of paying 16,663 euros in annual tax, they will pay 16,316 euros).
If the salary is 7,500 euros gross (9th bracket), in the same personal and family situation, the IRS reduces 447 euros (the tax drops from 34,002 to 33,555 euros annually).
Middle class will have less relief
In other words, as (JN) highlights, in these accounts, the most favored are those who earn less and those who earn more.
I and middle class is the least favored with the tax cut. Taxpayers in the middle of the IRS brackets you will hardly feel the relief.
JN once again exemplifies the case of a single taxpayer earning 1200 euros gross per month who will have to have a annual tax relief of 31 euros. But if you earn a thousand euros gross, the annual “discount” is 305 euros. If you have a monthly income of 2500 euros, your savings will already be 203 euros.
The same applies to couples without children: with a minimum wage income each (920 euros) they save 630 euros. If they earn 1200 euros gross each, in 2027 they will have a savings of just 63 euros. If the couple each has a salary of 2250 euros, their IRS decreases by 324 euros.
