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IRS Portugal: What responsibilities do companies have?

Updated: Jul 4, 2023

IRS Portugal

The payment of the IRS (Individual Income Tax) is a very recurring topic, especially between April and June. It is the responsibility of a large part of the Portuguese active in the labor market and, for this very reason, at the time of the declaration of this tax, there are many doubts. However, it is not only from the month of April that the IRS affects the income of the Portuguese, as many business managers know. What responsibilities do companies have in relation to the delivery of the IRS? How does this tax affect the management of a company's human resources?

What are the responsibilities that a company has in relation to

the payment of IRS?

As is well known, every month a part of our salary is part of it for IRS purposes. However, it is not this percentage that a worker ends up paying in tax; simply this money is withheld from the salary. This mechanism is called withholding tax, and it is up to the employer to deal with this withholding every month, depending on the worker's income. The IRS is a progressive tax, that is, the more you receive, the more you will have to withhold at source, and then the adjustment of accounts will be made when the declaration is submitted. In this context, companies have to adjust the calculations in the face of various changes that may occur in the situation of their workers. Companies also have the responsibility to submit the income declaration and IRS deductions of their employees for the year of remuneration that is subject to the tax return. For example, for the delivery of the IRS in 2023, the employer must submit this statement of income and deductions for 2022. This should be done after the end of this year so that the worker has this information in time for the delivery of the tax, which usually starts at the beginning of April. It should be noted that the IRS is not a cost to the company, instead of other taxes such as the IRC (Tax on the Income of Collective Persons), but something that is paid by the employer on behalf of others, in this case, its employees. Every month, the withholding taxes and the payment of the IRS must be made by the 20th relating to the contributions of the previous month. What does salary processing consist of?

First of all, to understand where the IRS affects people management, it is advisable to better understand how a company deals with salary processing. In addition to the IRS, salary processing includes the deduction of other taxes and contributions, and other remunerations such as bonuses, overtime, commissions, and also benefits. In the case of part-time workers, it is necessary to account for the hours worked and their deductions, in order to calculate the salary proportionally. The processing of salaries is directly affected by the taxation of IRS, and the final calculation is usually evaluated by professionals in the area of human resources and finance, in cases of large companies, or by an accountant. Errors in the amount of the IRS to be withheld monthly, for example, can result in legal and financial problems. So that this bureaucracy does not leave any doubt, we have organized for you a short list of the most important aspects when communicating this tax: IRS for companies: 5 points to retain

1. Medical discharges

When a worker asks for a medical leave, the remuneration he will receive during it is the sickness allowance that Social Security (SS) assigns. Therefore, as soon as the worker enters sick leave, the company will have to communicate this fact to the SS and account for the days paid for the allowance in the calculation of the salary to be paid. The amount to be received during the leave is relative to the time that the worker is absent from work due to illness:

  • up to 30 days - 55% of the reference remuneration;

  • from 31 to 90 days - 60% of the reference remuneration;

  • From 91 to 365 days - 70% of the reference remuneration;

  • More than 365 days - 75% of the reference remuneration.

Since in this period, the worker will be receiving an allowance, he does not receive the salary from the company, and thus will not have any withholding tax for IRS purposes. Therefore, this pause will have to be accounted for in the final accounts to be declared. 2. Inputs and outputs of employees

As soon as workers enter or leave a company, these changes will always affect, logically, the value that the company will have to retain (or not) from the IRS. This is, therefore, an important aspect to take into account when delivering this tax and the clearance of the final accounts. 3. Salary increases In a medium-sized company (100-250 workers), it is common for some salary revisions to occur throughout the year. Given the progressive characteristic of the IRS, this will affect the total tax amount that the company will have to withhold monthly. It should be noted that the IRS withholding tables will change as of July 1, 2023, a change that will result in greater wage liquidity. It is therefore expected that, in most cases, the withholding tax will be lower on the part of workers and, consequently, the amount that companies will have to declare will be reduced. 4. Salary bonuses The bonuses awarded by the company, either by performance or by other types of merit, are also subject to IRS, so they will also be taxed according to their value. Although it is not a fixed remuneration, and therefore it is more complicated to predict the total costs in this part, these amounts will also have to be accounted for the withholding tax to be declared. 5. Food allowance Many companies include in their salary package the so-called food or meal allowance, which, like other elements of the gross salary, may be subject to taxation. In order to facilitate these important payments to workers, limits have been established up to which employers can grant this allowance without being taxed. At this time, the tax-exempt limit has been set at 6 euros per day, if it is delivered in cash. If it is delivered by card or meal voucher, this limit increases to 9.60 euros. If these values are not exceeded, the company will not have to declare any tax on the food allowance. In short, there are numerous bureaucracies in the management of a company that is affected by the annual IRS declaration. From changes in the team to extra remuneration, everything has an impact on the processing of salaries subject to tax. To facilitate all issues, we recommend that you always consult an accountant or a professional in the area of finance, so that nothing is missing in the statement.

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