What is IRS withholding at source?

What is IRS withholding at source?

Withholding at source (retenção na fonte) is the IRS deducted from your salary every month. It is not a different tax: it is an advance on the IRS. Instead of paying it all at once the following year, you hand the State part of the expected tax with each salary¹.

The one who deducts and pays it is the employer (or whoever pays a pension): it withholds the amount on the payslip and hands it to the Tax Authority on the worker's behalf. That is why it shows up on the payslip as "IRS" or "retenção na fonte".

How is withholding at source calculated?

Since the second half of 2023, withholding uses a marginal-rate model, similar to how the IRS is worked out at year end. Each salary bracket has two values in the official table: a maximum marginal rate and a deduction (parcela a abater)². The formula is:

Withholding = Salary × Marginal rate − Deduction − (Amount per dependant × number of dependants)

The result is never below zero. This model avoids unfair "jumps": before, a small pay rise could push you into another bracket and cut your net pay; now the withholding rises smoothly.

Which table is right for your situation?

This is where many people go wrong. Your tax situation picks the table to apply:

The difference is real: the married single earner withholds less than the married two earners, because the table assumes that salary supports the couple. Getting the situation wrong over- or under-withholds.

Which salaries are exempt from withholding?

In 2026, monthly salaries up to €920 (the minimum monthly wage) are exempt from withholding, and up to €991 for a married single earner. So minimum-wage earners have no IRS deducted on the payslip through the year.

Note: being exempt from withholding is not the same as having no IRS. It only means there is no monthly advance; the final figure is worked out in the annual return.

A worked example: a €1,500 salary

Take a gross salary of €1,500 a month, single and with no dependants. Under Table I, this salary falls in the bracket with a 24.1% marginal rate and a €193.33 deduction:

1. €1,500 × 24.1% = €361.50
2. − €193.33 (deduction)
3. = €168.17 of IRS withheld per month (an effective rate of about 11.2%).

With one dependant, it would move to Table II and the withholding would drop to €133.88 (€34.29 less for the dependant). On top of these you also pay, separately, the 11% Social Security (€165 on this salary). Run your own case in the withholding calculator.

What is the difference between withholding and the IRS?

Withholding is a payment on account, made month by month. The IRS due is the final tax, worked out in the annual return, with your deductions (health, education, general expenses) and full family situation.

The withholding table tries to get close, but rarely matches to the cent. Hence what happens the following spring:

• If you withheld too much during the year, the State refunds the difference: the refund.
• If you withheld too little, you pay the difference in the return.

So a high withholding is not "losing money": it is just advancing more tax, which can come back as a refund.

Does the withholding include Social Security?

No. The payslip has two deductions of different natures:

• Withholding at source is the IRS (the income tax).
• The 11% Taxa Social Única is the Social Security contribution (which gives you pension, unemployment and sickness rights).

This calculator shows IRS only. To see the net salary with both deductions together, read how net salary is calculated and use the net salary calculator.