IRS Refund in 2026: Why You Might Receive Less This Year?

31 March 2026

3 min read

IRS impostos reembolso finanças pessoais retenção na fonte 2026

IRS Refund in 2026: Why You Might Receive Less This Year? por Pedro Flores - Grupo Your Contabilidade

Listen to articleFree

If you were expecting a generous IRS refund this year, it may be time to adjust your expectations. Many Portuguese taxpayers will notice a significant difference in the amount they receive - and the reason is, ultimately, good news in disguise.

The logic behind the refund

Every month, employees and pensioners have a portion of their salary automatically withheld by the State. This deduction works as an advance payment of the annual tax.

When you file your IRS return, the Tax Authority (AT) does the math: it compares what was withheld throughout the year with the tax you actually owe. If too much was deducted, you get it back. If too little was deducted, you'll have to pay the difference.

The problem is that this calculation is never perfect from the start. The AT doesn't know, for example, how much you spent on health, whether you sold a house, or whether you filed jointly with your spouse. That's why the annual return exists - to settle these accounts.

So why will the refund be smaller?

The answer lies in the changes made to withholding tables throughout 2025:

August and September 2025 - Those earning up to €1,136 gross per month had no IRS withholding at all. In practice, they received their full salary during those months.

From October onwards - New tables with lower rates came into effect, reflecting the approved tax reform. All workers started paying less in withholdings.

The result? For much of the year, the State withheld less money - which means there's less to return now.

This doesn't mean you're paying more tax. It means you already received that money in advance, in your salary, throughout 2025.

There's another factor to consider: pensioners who received the extraordinary supplement in September 2025 will see it counted in this year's IRS, even though there was no withholding at the time. This amount adds to total income and can reduce - or even eliminate - the expected refund.

How you can still maximise what you receive

Even though the impact is already done, there are ways to optimise your return before submitting it:

Simulate before filing. For couples, it's worth comparing joint and separate taxation. The AT provides simulations for both scenarios - choose the most favourable.

Check the automatic IRS data. Even if you're eligible for automatic filing, review all values before confirming. Errors or omissions can cost you money.

Enter expenses manually. Didn't validate all invoices on e-fatura? You can still recover health, education, care home, and housing expenses directly in the return, through section 6C of Annex H.

Consider aggregating income. If you have more than one source of income - salary, interest, rent - it may be advantageous to combine them under a single tax rate. Depending on your tax profile, this option can result in a lower final bill.

The perspective that changes everything

It's natural to feel some disappointment when seeing a smaller refund than in previous years. But it's worth looking at the other side: that money already went through your pocket throughout 2025, month by month. The refund isn't a bonus - it's simply the return of what was over-deducted. The smaller it is, the closer the monthly deduction was to the actual tax you owe.

The key is to file your return carefully, take advantage of all available deductions, and start planning for the coming months of 2026 - because the 2027 refund starts building now.

Need help with your IRS return? At Grupo Your, we help optimise your tax situation. Simulate your IRS 2026 or contact us.