How to calculate net pay in Portugal?
Posted at 15/02/2023
After starting our professional life and analyzing our pay slips month after month, we understand better the differences between net salary and gross salary. Throughout this article, we will explain the calculations you should make to arrive at the amount you will receive in your account at the end of a month's work.
Many times we are surprised to see that at the end of the month the money that arrives in our account does not correspond to what we expect. This can happen in the first months, after starting a new job, when the worker is not told what salary he will receive after all the deductions are made, namely for Social Security and IRS. This is how we arrive at what we call the Net Salary, which is the salary we receive in our account every month.
Whenever you start a new job, make sure that the salary proposal you are being offered corresponds to the net or gross value, because in the end it will make all the difference.
What data do I need to calculate the net salary?
It is necessary to take into account that the deductions will depend not only on the base salary you will be paid, but also on other factors. To calculate the net salary, there are several variables that go into this calculation:
- What is the gross salary, i.e., the salary in full without any deductions
- Marital status (single, married and no. of income earners)
- Dependents (yes or no. If yes, how many
- Meal subsidy and form of payment (what is the amount and how is it paid - meal card, vouchers, cash)
- Holiday and Christmas subsidy (indicate whether you receive the holiday and Christmas subsidies in full or possibly some of them or part of them in twelfths)
- Other remunerations subject or not to IRS or Social Security (for example, prizes, bonuses, or others).
How is the net salary calculated?
The net salary is always equal to the gross salary minus the Social Security deductions and minus the IRS deductions. The Social Security deduction for an employee is 11% of his gross salary. The deduction for IRS will depend on the tax bracket you have been assigned and that you can consult on the IRS Withholding Schedule 2023 available on the Finance Portal. Do not forget that you will still have to add to the Gross Salary the value of the holiday and Christmas subsidies, however, these will also be subject to deductions. If you are entitled to it, your food subsidy will be added to your gross salary. In this case, there may or may not be deductions. This will depend on its value and the way it is paid.
What will change in 2023?
Every year the State Budget offers us some news and 2023 was no exception. The update of the IRS tax brackets is one of the big differences that we can see this year, 2023, in relation to the previous year. In practice, this translates into a reduction from 23% to 21% in the marginal rate of the 2nd bracket and therefore in the increase of the net salary in some workers. You should check if this is the case for you. Also, those with a lower salary, namely salaries up to EUR 762, are exempt from any deductions for IRS.
This year, young people who earn income from dependent work for the first time after finishing their studies will also benefit from a reduction in the amount of the deduction for IRS. If you are one of those who works a lot of overtime, you will also benefit from a lower number of discounts for the IRS. From 100 hours, the withholding tax rate will be halved. These are some of the changes that the government is putting into practice this year, and which will be reflected in the pockets of the Portuguese, month after month. Keep an eye on your next receipt!
