The process can seem confusing, and taxpayers often wonder if they will get a tax refund or have to pay taxes.

To help reassure and guide readers, The Portugal News, with the help of an idealista article, has put together a clear, step-by-step guide to make the process feel more manageable.

Data to consider

To make a correct calculation before submitting your tax return, there are a few things to bear in mind. Firstly, consider your gross annual salary; this is your income before deductions. It includes your basic salary and any allowances, such as meal allowances, holiday pay, transport allowances, or a Christmas bonus.

For deductions, pay attention to tax at source, which is the portion of your salary paid to the State each month. Also consider tax allowances. These cover general and family expenses, like healthcare, education, food, and leisure. In the case of income taxed separately—which is not included in the calculation of relevant income tax—these allowances may reduce your tax liability.

Other factors can influence your settlement with the Tax Authority. These include marital status, joint or separate taxation (depending on marital status), and number of dependants - children or minors in your care, which reduces the tax payable.

Additional income, such as rental income and capital gains, can also affect the calculation.

Proceeding with the calculations

With these factors in mind, you can confidently proceed with the calculations. Online simulators are available that let you test various scenarios and provide an approximate figure for your income tax liability, helping you feel prepared and secure.

Understand that taxable income is calculated by subtracting specific deductions from annual gross income. These automatic allowances vary by income category.

Usually, workers (in Category A) can deduct €4,587.09 in 2026 (based on the IAS), or, if higher, the amount they pay in social security contributions. If the taxpayer has additional costs, such as job-related fees, the deduction may be higher.

For example, if a Category A taxpayer’s annual gross income is €25,000, first subtract the standard deduction of €4,587.09. This means €25,000 - €4,587.09 = €20,413. The resulting €20,413 is the taxable income, which determines the appropriate tax bracket.

Owing taxes

To work out the total tax you owe—this is the amount before tax deductions are taken off (which you can check on the Portal das Finanças after invoices are validated through E-fatura)—you use the table in Article 68 of the Income Tax Code. There are two ways to do this math.

In the first way, if your taxable income is more than the top of the first bracket (€8,059), you split it into two parts.

The first part includes income up to the bracket's highest limit. Use the average rate for this bracket from column B. For any income above that limit, apply the normal rate from column A.

Back in our earlier example, a worker with taxable income of €20,413 is in the 4th bracket (from €17,233 to €22,306). So, with the 2025 IRS (Income Tax) table, which you use for 2026, you figure it out like this:

The first part covers income up to the top of the 3rd bracket (€12,160 to €17,233). Use the average rate for this bracket: 15.982%.

Take the 3rd bracket limit (€17,233) and multiply it by the average rate for this bracket (15.982%): €17,233 × 15.982% = €2,754.18. This is the tax on the first portion of your taxable income.

For the second part, use the excess amount: €3,180 (€20,413 taxable income minus €17,233). Apply the rate from column A to the next bracket, the 4th.

Multiply this excess amount (€3,180) by 24.40% to get €3,180 × 24.40% = €775.92. This is the tax on the second portion.

Finally, add the calculated tax amounts: €2,754.18 (first portion) + €775.92 (second portion) = €3,530, which is the total tax due before deductions.

Alternatively, multiply the total taxable income by the standard rate for the tax bracket (24.40%): €20,413 × 24.40% = €4,980.77. Then, subtract the bracket-specific deduction (€1,450.67): €4,980.77 - €1,450.67 = €3,530. This gives the same tax due as above.

As the taxpayer is subject to tax at source, a portion of their salary is deducted monthly throughout the year and paid to the State.

Final tax liability

Therefore, to arrive at the final tax liability, the total amount withheld at source is subtracted from the net tax liability (net tax liability – tax withheld at source = final tax liability).

According to the official formula, if the balance is positive, you must pay the outstanding tax amount to the State; if the balance is negative, you are entitled to a refund.

A new table has been established for the 2026 IRS, for which the tax return will be submitted in 2027. This update includes changes to the minimum and maximum thresholds for each bracket, as well as to the rates applicable to the standard and average tax rates.