he payment of personal income tax ("IRS" in Portugal) is a recurring theme in Portugal, especially between April and June. It is a responsibility of a large part of the Portuguese people that are active in the labour market and, for this very reason, when it comes time to declare this tax, many questions arise. However, it is not only from April onwards that personal income tax affects the Portuguese income, as many company managers know.
What responsibilities do companies have when it comes to filing the tax return? How does personal income tax affect the management of a company's human resources? Find out everything in this article that ComparaJá wrote for you!
What are the responsibilities that a company has regarding the payment of personal income tax?
As it is well known, every month a part of our salary is set aside for personal income tax purposes. That's not the percentage that an employee ends up paying tax on, though; that money is simply withheld from the salary. This mechanism is called withholding at source and it is up to the employer to take care of that retention every month, depending on the worker's income.
Personal income tax is a progressive tax, i.e. the more you receive, the more you have to withhold at source and then make the adjustment of accounts when filing your tax return. In this context, companies have to adjust their calculations in view of various changes that may occur in the situation of their employees.
Companies are also responsible for sending in their employees' income tax returns and deductions for the year of remuneration which is subject to the tax return. For example, for filing the tax return in 2023, the employer must file the return of income and deductions for 2022. This should be done after the end of 2022, so that the employee has that information in time for the tax filing, which usually begins in early April.
It should be noted that the personal income tax is not a cost to the company, unlike other taxes such as corporate income tax (IRC), but rather something that is paid by the employer on behalf of others, in this case its workers. Every month, withholdings at source and payment of personal income tax must be made by the 20th day of the month and relates to the contributions of the previous month.
What does salary processing consist of?
First of all, in order to understand where personal income tax affects people management, it is convenient to better understand how a company handles salary processing. In addition to personal income tax, payroll processing includes the deduction of other taxes and contributions, other remuneration such as bonuses, overtime, commissions and also benefits.
In the case of part-time workers, the hours worked and the respective deductions must be accounted for in order to calculate the salary proportionally.
Wage processing is directly affected by personal income taxation, and the final calculation is usually evaluated by human resources and finance professionals in cases of large companies, or by an accountant. Mistakes in the amount of personal income tax to be withheld each month, for example, can result in legal and financial problems.
To avoid any doubts, we have put together a list of the most important things you should know when filing your tax return:
Personal income tax for companies: 5 key points
1. Sick leaves
When an employee requests a sick leave, the remuneration he/she will receive during the sick leave is the sickness benefit that Social Security (SS) grants. Therefore, as soon as the employee goes on sick leave, the company has to communicate that fact to the SS and count the days paid for the allowance in the calculation of the salary to be paid.
The amount to be received during sick leave is related to the time the employee is absent from work due to illness:
- up to 30 days - 55% of the reference remuneration;
- between 31 and 90 days - 60% of the reference remuneration;
- between 91 and 365 days - 70% of the reference remuneration;
- more than 365 days - 75% of the reference remuneration.
Since in this period the employee will be receiving the sick leave allowance, he/she will not receive a salary from the company, and therefore will not have any withholding tax for personal income tax purposes. Therefore, this break will have to be taken into account in the final amount to be declared.
2. Incoming and outgoing employees
As soon as employees enter or leave a company, these changes will always affect, logically, the amount that the company will have to withhold (or not) for personal income tax purposes. This is, therefore, an important aspect to take into account when filing the tax return and calculating the final amount.
3. Salary increases
In a medium-sized company (100-250 employees), it is common to have some salary revisions during the year. Given the progressive feature of personal income tax, this will affect the total amount of tax that the company will have to withhold each month.
It should be noted that the personal income tax withholding tables will change as of July 1st, 2023. This is a change that will result in increased salary liquidity. It is therefore to be expected that, in most cases, withholding tax will be lower for employees and, consequently, the amount that companies will have to declare will reduce.
Bonuses awarded by the company, whether for performance or other merit, are also subject to personal income taxation, 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, these amounts will also have to be taken into consideration for the withholding tax to be declared.
5. Meal allowance
Many companies in Portugal include in their salary package the so-called meal allowance, which, like other elements of the gross salary, may be subject to taxation. In order to facilitate these important payments to employees, limits have been set up. Up to these limits, employers can grant this allowance without being taxed.
At the moment, the tax-free limit has been set at 6 euros per day if it is given in cash. If it is given in the form of a card or meal voucher, this limit increases to 9.60 euros. If these amounts are not exceeded, the company does not have to declare any tax on the food allowance.
In short, there are countless bureaucracies in the management of a company that are affected by the annual tax return. From staff changes to extra pay, everything has an impact on the processing of taxable wages. To make things easier, we recommend that you always consult an accountant or tax professional so that nothing is missing from your tax return.