IRS declaration: Lower refund or tax to pay? Find out why.

Will there be a smaller IRS refund this year, or even have to pay? Understand the reason.

If, when doing the IRS simulation, you noticed that the amount to receive this year is lower than usual — or, worse, that you will have to pay — it does not mean you are being penalized.

The President of the Order of Certified Accountants (OCC), Paula Franco, has clarified this situation. Speaking to the Lusa news agency, as reported in Notícias ao Minuto, she stated that many people have been surprised by the simulation results: Either because the refund has dropped significantly, or because they have gone from receiving money to having to pay.

However, it reinforces that this scenario was already predictable. For about two years, the system has been getting closer to the amount withheld monthly that each taxpayer should actually pay. In particular, in September and October 2024, there was a significant drop in withholding tax rates - a measure aimed at adjusting monthly discounts to the changes in IRS rates approved last summer.

According to Paula Franco, it is natural that many taxpayers, when submitting the declaration in 2025, will see a lower refund or even the obligation to pay tax.

Practical examples

The chairwoman gave some concrete examples.

• A retiree with a pension of about 1,300 euros, who last year received a refund of 500 euros, will pay 50 euros this year.

• As a retired couple, with pensions around 3,500 euros, who previously received about 4,000 euros, will now see refunds drop to 2,500 euros.

Are taxpayers ultimately getting harmed?

According to the OCC, no. The change in the refund amount or the existence of tax to pay results only from the fact that, in 2024, workers and pensioners have delivered less money to the State — and, therefore, have more available income throughout the year.

"Taxpayers are not harmed," simply workers and pensioners "paid less to the State, retained less, had more money in their pockets throughout the year and now in this final settlement there is less refund or tax to pay," said Paula Franco.

This adjustment aims to align monthly withholding more and more with the actual tax to be paid. However, the final amount to be paid or refunded will continue to depend on deductible expenses included in the statement.

The withholding tables were updated precisely to correct the excess discounts that occurred in the first months before the new rules came into effect. During September and October, for example, salaries up to around 1,700 gross euros were exempt from IRS - which allowed for immediate relief in monthly income. For higher salaries, the withholding was also lower than usual.

Read also: How does the IRS affect the financial capacity to request credit?

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