The combination of the changes introduced by the Government in the IRS – the progressive reduction of the surcharge on the basis of income earners, the replacement of the family quotient by a more generous deduction for each child, plus the updating of the IRS brackets to inflation last year – has benefit most households this year. This is one of the conclusions of the PwC consultant who conducted a set of simulations for the PUBLIC to measure the various income levels the ultimate impact of the changes.
The conclusion holds true for the two main measures taken together (deduction per child and reduced surcharge). Increased deduction per dependent for 550 euros (instead of the family quotient to determine the taxable income and the current deduction of 325 euros) only benefits families with incomes close to the 850/900 euros or less, explains the fiscalist PwC Ana Duarte. Above these income there is also a relief, but when it happens, “is the reduction of the surcharge that relieves the tax burden,” he stresses.
This compensation no longer the case, however, in some situations families more and more dependent on high yields. That is, not always reduce surcharges that compensates for negative impact: either because the descent is not enough or simply because, in the case of the last step yield (above 80 thousand euro) the overhead is kept at 3.5% (the covering only 0.2% of households).
the simulations allow PwC to compare some of these situations, at different income levels. See what happens, for example, a couple with two children where each parent receives 800 euros per month (22,400 combined income of euros per year – in gross value, as the following examples).
to make the comparison we assumed a certain level of spending on education, health, costs of real estate and family overheads. With the changes in IRS rules, this family starts to pay less IRS 432.92 euros compared to the tax on the 2015 income (tax down from 727.84 euros to 294.92 euros).
Applying the same example (two flhos) to a couple where each earns 1,500 euros a month (42,000 per year), there is also a saving of 371.35 euros (tax drops from 6130.29 euros for 5758.94 euros). A simulation to income of 3000 euros per month, there is also a relief, to 292.81 euros, provided by both the enhanced deduction as the descent of the surcharge.
In the case of both parents have an annual income set of 126 000 euros (each receive 4,500 euros per month), the changes do not compensate. There is an increase in the tax at 228.95 euros (start paying IRS 38,743.20 euros), because the reduction of the surcharge does not cover the negative impact of the change in the rules.
The PwC simulations for other family types, such as couples with three children, show that this trend is also true: there is a relief for those who receive less (800, 1000 or 1500 euros) and an IRS rise for those who earn more (3000 or 4500 euros). Although in the case of income of 3000 euros trends are different (the couple with two children receives an easing and who has three children is increased IRS), you need to be aware that a couple with two dependent pays naturally more than it has three.
in the case of a single taxpayer with one child, there is an IRS down to who wins 800 thousand, 1500, 3000 or even 4500 euros. Those who have children also have no relief, either because the surcharge decline, either because of update of the IRS brackets to last year’s inflation of the value (0.5%).
as happened in 2015, when the family quotient was created, the purpose of this measure is no consensus either among tax experts, not amongst all the parties with parliamentary representation. For different reasons. Some, such as the Portuguese Association of Large Families, disagree that children are considered in IRS only after the performance of clearance through a deduction equivalent to a “health expenses or education.”
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