Portugal's New Tax Rule on Pension Bonuses: What You Need to Know

New IRS Taxation on Pension Bonuses

The Portuguese government is set to implement an extraordinary supplement for lower pensions, which will be paid in October. This supplement will be subject to autonomous IRS retention, similar to holiday and Christmas bonuses, ensuring that it is not added to the monthly pension for tax purposes.

The Ministry of Finance confirmed that, like in previous years, this pension supplement will follow a separate tax rate. This means when retirees receive their regular pension in October, IRS will be withheld based on the standard rate for that month, while the supplement will be taxed separately at the same rate applicable to the pension amount.

The autonomous rate aims to prevent any increase in tax burden for pensioners compared to their usual pension tax rate. The supplement, announced by Prime Minister Luís Montenegro at a PSD party event, is designed to provide extra financial support to pensioners with lower incomes, with amounts varying between €100 and €200.

For instance, those receiving pensions up to €509.26 will get €200, while those up to €1,018.52 will receive €150. For pensions up to €1,527.78, the bonus will be €100.

As the government prepares to adjust IRS withholding tables to reflect a tax reduction approved in June, the specific rates applicable to the pension bonuses remain uncertain. The new tax tables are expected to take effect in September, alongside a mechanism to retroactively apply the IRS reduction for income and pensions from January to August. The goal is to ensure that the tax adjustments are made efficiently, avoiding delays until the 2025 tax refunds.

Key Points:

• The extraordinary pension supplement will be taxed separately to prevent increased IRS rates.
• Amounts for the supplement will range from €100 to €200 based on pension levels.
• New IRS tables are expected to be implemented in September, affecting the remaining months of the year.
• The government aims to provide retroactive tax relief for the first eight months of 2024.