IRS: A practical guide to taxes and refunds

IRS Made Simple: What is it and what is it for?

The Imposto sobre o Rendimento das Pessoas Singulares (IRS) is often seen as the villain of the year. But, in reality, it’s just a "settling of accounts" with the State.

Every year, between April and June, you submit a tax return summarizing everything you earned the previous year (from January 1st to December 31st). If you are filing your taxes in 2026, it refers to what you invoiced or earned in 2025. It’s that simple.

Who has to pay and what counts for the calculation?

IRS is a personalized tax. This means two people earning the same amount can pay very different values. Why? Because the Tax Office looks at your entire life:

• Your marital status (married, single, civil union);
• How many dependents (children or elderly parents) are in your care;
• Any degree of disability;
• Your health, education, and housing expenses.

The famous "Categories": Where do you fit in?

IRS divides income into "drawers." The most common for business owners are:

• Category A: Employment income (your salary if you are an employee).
• Category B: Business and professional income (if you are a freelancer or own a business).
• Category F: Rental income (if you have rented properties).
• Category H: Pensions.

Tip: Some incomes are exempt from IRS, such as unemployment benefits, family allowances, or sick leave. If you earn less than €8,500 per year, you are also usually exempt.

How is IRS calculated? (Without the boring formulas)

The calculation follows a "staircase" logic. The more you earn, the higher the percentage (tax rate) you pay. But don't worry, the process boils down to this:

1. Sum your earnings (Gross income).

2. Subtract automatic expenses allowed by law (Specific deductions).

3. Divide by the family: If you are married and file jointly, the income is divided by two (family quotient), which usually lowers the tax rate.

4. Apply the Tax Rate: The result determines which tax bracket you fall into.

The Million-Dollar Question: Will I get a refund or have to pay?

This is the part everyone wants to know. The secret lies in the balance between the Coleta (the actual tax you owe) and what you’ve already paid during the year.

• Refund: Happens when your withholdings (the money the State "kept" for you every month) and your deductions (pharmacy, gym, supermarket invoices) add up to more than the tax you owe.
• Payment: Happens when what you paid during the year isn’t enough to cover the final tax due.

Remember: Asking for an invoice with your NIF for everything (restaurants, car repairs, vets) is the most effective way to lower the tax you pay or increase your refund!

Technology working for your pocket

Managing invoices and income doesn’t have to be manual work. If you use software like Moloni ON, you’re already halfway there. By issuing your invoices and recording your Category B income in an organized way, the end of the year becomes much smoother and free of last-minute errors.

Extra Tip: On the Finance Portal, regularly check the "e-fatura" section to ensure all your expenses are being correctly accounted for.

Has IRS stopped being a mystery? With organization and the right tools, this annual obligation stops being a burden and becomes just another routine management task.