According to the proposal for the State Budget for 2022 (OE2022), which the Minister of Finance, João Leão, handed over to parliament, the 3rd level that currently applies to annual taxable income in excess of €10,732 and up to €20,322, which was subject to a 28.5 percent tax, will be split into two new tiers.

The two new levels encompass income between €10,736 and €15,216, on which the aforementioned rate of 26.5% applies and income between €15,216 and €19,696, taxed at 28.5%.

The new 5th and 6th levels (corresponding to the old 4th and 5th) remain practically unchanged, but the next level brings changes, fulfilling what had already been indicated by the Prime Minister regarding a deployment of the 3rd and 6th levels of IRS.

Thus, income between €36,757 and up to €48,033 now has a rate of 43.5% and on the next level, between €48,003 and up to €75,009 the rate is 45%.

The last step, which until now aims at annual income above €80,882, drops to €75,009, with the rate remaining at 48%.

This change ensures a tax reduction for those who were closer to the lower limit of the former 3rd and 6th brackets to have some tax relief, but seeks to neutralize this effect for those with higher incomes.

The solution was similar to that of 2018, when the number of steps increased from five to seven, but the rates were adjusted in order to neutralize in the higher levels the impact of the decision of marginal rates in the first levels.

For the impact of this splitting of the tiers and changes in the respective rates to have a practical effect on the monthly disposable income of families, it is necessary that the withholding tables that come into force in January reflect this change.

This measure is part of what the Government calls the IRS package (which includes, in addition to the levels, the Regressar program and the IRS Jovem) which, as a whole, will have an impact of €235 million, of which €205 million in 2022.