Benefits of Personal Income Tax for Young Professionals

Diogo Pedro | Lawyer

Over the past four years, young workers who earned their first income as employees or self-employed individuals have been eligible for a tax benefit in their personal income tax, known as 'IRS Jovem”.

This benefit is intended to offer young workers the possibility of minimising their tax obligations, allowing for a higher amount of disposable income.

To enjoy this benefit, taxpayers are required to comply with the following requirements:

• Have a complete course of level 4 or higher studies on the National Qualifications Framework (high school level acquired through double certification and aimed at pursuing higher education such as a bachelor’s degree, a master’s degree, or a PhD).
• Age between 18 and 26 years old.
• Considered independent, i.e., no longer included in the parent’s household for tax purposes.

The specified age limit includes individuals up to 26 years old, inclusive. However, this limit is extended to 30 years old for taxpayers who have completed a degree at level 8 of the National Qualifications Framework (PhD).

In 2024, this tax benefit has been improved, with increased tax exemption rates and an expanded range of applications over time.

In this sense, upon completing the course of studies required, the individual may qualify for an exemption from personal income taxes for a duration of 5 years, as explained in the following details:

• 100% of the income in the first year with a cap of 40 times the Social Support Index – “IAS” value (€20.370,40).
• 75% of the income in the second year with a cap of 30 times the IAS value (€15.277,80).
• 50% of the income in the third and fourth year with a cap of 20 times the IAS value (€10.185,20).
• 25% of the income in the fifth year with a cap of 10 times the IAS value (5€.092,60).

Moreover, the exemption can only be used once by the same taxpayer and should be requested when preparing and filing the personal income tax return.

It is also important to acknowledge that this benefit has implications for withholding tax, allowing adjustments to the value subject to withholding tax. However, be aware that, while the withholding tax rate applied corresponds to the total amount of income earned, it is only applicable to the portion that is not exempt.

If you have any questions or need assistance with this or related matters, feel free to reach out. We would be delighted to help you.