New IRS withholding tax model: what changes and how to calculate

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What does the new IRS withholding tax model consist of?
The new IRS withholding tax tables and the new Withholding Tax Model (marginal rate) are mandatory to apply from 01/07/2023, but companies will be able to apply them before this date.



1. Bring the monthly withholding closer to the annual withholding due
This model aims to bring the monthly withholding as close as possible to the withholding due annually by taxpayers to prevent more value being withheld throughout the year than will be due at the end.



2. Avoid reductions in the monthly net amount in cases of income bracket increases
On the other hand, the aim is also to avoid situations in which a salary increase, and consequent increase in the income bracket and IRS withholding rate, result in a reduction in the net amount that the employee receives monthly, which could occur in the previous model.



Framework for updating the Retention tables in 2023
The withholding tax tables will change in the second half of 2023 and will india whatsapp number database marginal rates, with installments to be deducted.


In addition to the approval of the withholding tax tables on income from dependent employment and pensions to be in force during the first half of 2023, a new model of withholding tax tables will come into force on 01/07/2023 following a marginal rate logic, in accordance with:




Order No. 14043-A/2022, of December 5 (Mainland Portugal)
Order No. 442/2022, of December 27 (Madeira)
Order No. 14837-B/2022, of December 29 (Azores).


The new withholding tax tables and some specific calculation rules were approved in separate Orders:



Order No. 14043-B/2022, of December 5 (Mainland Portugal)
Order No. 14837-C/2022, of December 29 (Azores)
Order No. 54/2023, of January 30 (Madeira).




Updating the IRS table in which employees fall
Current model: currently, there are 9 IRS tables between dependent work and pension tables.

New model: in the new model there are 16 tables, so it is necessary to validate the new framework of each employee so that the correct table is applicable to them and to validate that their tax data is up to date, namely, marital status, type of income, number of dependents with and without disabilities equal to or greater than 60%, indication of the existence of a disability equal to or greater than 60% of the employee or their spouse and the number of income holders.



How are IRS withholding amounts calculated?
Base Calculation Rule
In the Orders that approved the new tables and the new IRS regime, two basic rules for calculating IRS withholding are presented:



1. Dependent employment – ​​Holders with dependents
In the case of income from dependent employment earned by common holders or more dependents, the withholding tax corresponds to the result of the following formula:
[Monthly remuneration (R) x Maximum marginal rate] - Portion to be deducted - (Additional portion to be deducted per dependent x number of dependents)





2. Dependent employment – ​​Holders without dependents or pensions
In the case of income from dependent employment earned by holders without dependents or pensions, the withholding tax corresponds to the result of the following formula:
Monthly remuneration (R) x Maximum marginal rate - Portion to be deducted



Other installments to be deducted


1. Disabled Dependents
According to point 5, paragraph a) of the same Orders , for each dependent with a degree of permanent incapacity equal to or greater than 60%, the following amount is added to the amount to be deducted:



€84.82 in the case of unmarried or married, single holder
€42.41 in the case of married couples, two holders.




The additional deduction amounts for each Disabled Dependent indicated above will be multiplied by the number of disabled dependents the employee has.



2. Disabled spouse who does not receive income from categories A or H
According to point 5, paragraph b) of the same Orders , in the situation of a married couple, single holder and whose spouse does not receive income from categories A or H and has a disability that gives him/her a degree of permanent incapacity equal to or greater than 60%, the amount of €135.71 is added to the portion to be deducted.

Taking into account all these rules and to facilitate understanding of the calculations of the IRS base scenarios, we can apply the following formula:

[Monthly Remuneration x Maximum Marginal Rate] - (Portion to be deducted - Disabled Spouse Portion) - [(Additional portion to be deducted per dependent x number of dependents) - (Disabled Dependent Portion x number of disabled dependents)]

This formula consists of the following values:

· Monthly Remuneration
Total remuneration subject to IRS and which contributes to the calculation of the IRS bracket;



Maximum Marginal Rate
Maximum marginal rate of the table in which the employee is included, corresponding to the line of the bracket of his/her monthly income;



· Portion to be deducted
Amount to be deducted from the "Instalment to be deducted" column of the table in which the employee is included, corresponding to the row of the monthly income bracket. In most cases, it corresponds to a fixed amount in euros, but in the 2nd and 3rd brackets it corresponds to the application of a formula;



· Disabled spouse installment
If the employee meets the required conditions, the additional amount of €135.71 is deducted for the year 2023);



· Additional portion to be deducted per dependent
Amount to be deducted for each non-disabled dependent;



· Dependent portion disabled
Amount to be deducted for each disabled dependent, €84.82 if the employee is unmarried or married, single holder and €42.41 if married, two holders;



· Number of Dependents
Total number of dependents corresponding to the sum of the Number of dependents and the number of Disabled Dependents with disability >= 60% from the Tax Data tab of the Employee Record.



It should be noted that the minimum amount to be withheld from IRS must be €0, i.e. if the result of the calculation is a negative value, for example because of the portion to be deducted for dependents, the value is zero. The exact values ​​must be used in the calculation, only rounding the result of the amount to be withheld to the nearest unit.