IRS payments on account in Portugal: what they are, how much and when you may reduce them

What they are, and why only some people pay them

Someone on a salary pays their Portuguese income tax through the year without noticing: the employer withholds part of every payslip and hands it to the State. Someone working for themselves has no such mechanism running as regularly, so the law built a substitute. Article 102 of the Income Tax Code opens by making three payments on account compulsory for anyone holding category-B income, due by the 20th of July, September and December¹.

Two things in that sentence matter. It is an obligation, not an option and not a savings plan. And it is an advance on the tax due at the end of that same year, which is later set against the amount assessed on the following year's return.

The calculation starts two years back, and that is where the confusion begins

Paragraph 2 requires everything to be worked out from the tax assessed "do penúltimo ano"¹, the year before last. Not last year. The year before that.

The reason is practical. The first instalment falls due on 20 July, and at that point the previous year's income tax is still being assessed, often without a settled figure. So the law steps back one further year, to an exercise already assessed and notified. In practice the 2026 instalments come out of the 2024 return, filed in 2025.

That has a consequence worth anticipating. An unusually good year only shows up in the instalments two years later, when you may already be invoicing far less, and a weak year keeps the instalments low long after the business has recovered. It is why the assessment notice so often feels disconnected from present reality, and it is also why the option to reduce the instalments exists, discussed further below.

The formula, piece by piece

Paragraph 2 sets the total at 65% of the following formula¹:

C × (RLB ÷ RLT) − R

The article defines the abbreviations itself:

• C is the tax assessed for the year before last, net of the tax credits in article 78(1) except the one in subparagraph (i). That subparagraph is the disability credit³, and it is the only one that does not reduce the assessment for this purpose.
• R is the total tax withheld during that year on category-B income.
• RLB is that year's positive net category-B income.
• RLT is that year's total net income.

The RLB ÷ RLT fraction is the piece almost every summary drops, and it is the one that changes the result most. It measures how much of your income came from category B. If, alongside your invoices, you have a salary, a pension or rental income, your assessment was generated by all of that together, and only the part attributable to the independent activity enters the payments on account.

For a taxpayer with 25,000 € of total net income, of which 20,000 € came from category B, the ratio is 80%: a 3,000 € assessment enters the calculation as 2,400 €. Someone with only category-B income has RLB equal to RLT, the ratio is 100% and the whole assessment goes in. The phrase "65% of your assessed tax", which appears everywhere, is only right in that last case.

Once the ratio has been applied, the withholdings are subtracted. This catches people out in both directions. Anyone invoicing mostly companies suffers withholding on nearly every invoice and ends the year with a high R, which often equals or exceeds the tax attributable to category B: the base is then zero and there are no payments on account at all. Anyone invoicing mostly private individuals, or clients abroad, suffers no withholding, has R equal to zero, and ends up with the largest instalments.

The rate fell from 76.5% to 65%

This is the recent change that has not yet reached most of what is published on the subject.

Up to the 2024 payments on account, the same paragraph set the total at 76.5% of the formula². The Lei n.º 45-A/2024 of 31 December, which enacted the 2025 State Budget, replaced that figure with 65%, and the 2026 State Budget did not touch it again¹.

The Portal das Finanças serves both versions side by side, which allows a word-by-word comparison. The percentage changes and nothing else does: not the formula, not the definitions, not the rounding, not the 50 € minimum. In money, that is 15% less on every instalment.

If you find a calculation that produces a visibly higher figure than your assessment notice, this is the most likely cause. The second most likely is that the RLB ÷ RLT fraction was ignored.

Rounding and the 50 € minimum

Paragraph 3 deals with what happens to the total: the value of each payment on account, rounded up to whole euros, is notified to taxpayers through the assessment notice for the reference year, with the payment document sent in the month before each deadline, and it is not payable if it falls below 50 €¹.

That is three rules in a single sentence. The total is split into three equal instalments. Each is rounded up to whole euros, so the year can come to as much as 3 € above the formula result. And each instalment stops being payable below 50 €. Note that the subject of the sentence is the value of each payment, so the minimum is tested instalment by instalment and not against the year's total: a year totalling 147 € is not paid, because each instalment would be 49 €.

Reducing or stopping: you may, within a 20% margin

Payments on account are calculated from an old year, and the law knows it. So it gives the taxpayer two ways out, and neither depends on permission.

Paragraph 4 ends the obligation in two situations: where the taxpayer establishes, from the information available to them, that the withholdings on category B, together with instalments already paid, equal or exceed the total tax that will be due; and where category-B income simply stops¹. Paragraph 5 allows the instalment to be reduced whenever it exceeds the difference between the tax believed to be due and what has already been paid.

The brake is paragraph 6, and it is a generous but finite tolerance. If the return for the year in question shows that, as a result of that cessation or reduction, an amount greater than 20% of what would normally have been delivered went unpaid, compensatory interest is due¹. The shortfall is attributed in equal parts to each of the instalments.

Two details the provision adds and that are rarely read. The interest is only due if the reference year was assessed by 31 May of the year the payments fall in, and if the taxpayer remains in the same household. And the rate is not arbitrary: paragraph 7 points to article 35 of the General Tax Law, whose paragraph 10 sets the compensatory interest rate equal to the statutory interest rate under article 559(1) of the Civil Code⁴, the civil statutory rate, at 4% a year since 2003. It runs day by day from the deadline of each payment.

In practice the 20% margin is the number that matters to anyone deciding whether to reduce. On a year of 1236 €, up to 247.20 € can go unpaid without entering interest territory.

Whatever you overpay comes back

It is worth closing on the part that makes all of this lighter than it looks. Payments on account are not a cost: they are an advance.

Article 78(2) requires payments on account for the same tax period, and withholdings of the same nature, to be deducted from the assessed tax, and article 78(3) adds that only those deductions, where they exceed the tax due, give a right to a refund of the difference³. So everything paid on account is set against the year's tax, and anything left over is returned in the assessment, exactly as withholding is for employees.

The problem with payments on account is not that they are extra tax. It is that they are tax earlier, calculated on a picture of your income that is two years old. Knowing the figure in advance is what lets you have the money ready in July, or decide on solid grounds that reducing is worth it.

Run your own figures

The IRS payments on account calculator applies the article 102 formula to your numbers, showing the category-B share, the amount of each instalment, what the previous 76.5% rule would have produced and the 20% margin available if you decide to reduce. All four inputs are on the assessment notice for the year before last.