Every month, when looking at your payslip, you see two main deductions: Social Security and IRS. But the IRS amount taken from your salary is not, in most cases, the actual tax you will pay. It's a prepayment.
Understanding the difference between withholding tax and effective tax is the key to understanding why some years you get a refund and others you have to pay the State. This Grupo Your guide explains, simply, how both concepts work and what you can do to optimize your tax burden in 2026.
What is withholding tax
Withholding tax is the mechanism by which part of your monthly income is delivered to the State directly by the entity that pays you (employer, company issuing freelance receipts, bank paying interest, etc.). It works as a prepayment of the tax that will later be definitively calculated in the annual return.
What is effective tax (IRS)
Effective tax is the amount the taxpayer actually has to pay regarding the previous year's income. This calculation is made between April and June, when the IRS declaration (Form 3) is submitted, considering all income, household, deductions and tax benefits.
Why the two values never match exactly
Withholding is a provisional value based on few data points, while effective tax results from a complete analysis of your entire fiscal life. Civil status, dependents, deductible expenses, capital gains, rental income and tax benefits all affect the difference.
Why you get a refund some years and pay others
If during the year the State withheld more than the effective tax, it returns the excess (refund). If it withheld less, it charges the difference. Receiving a refund doesn't mean you "made money" on IRS - it means you lent money to the State interest-free.
What you can do to optimize
- Validate invoices on e-fatura by February 25th
- Always provide your NIF on relevant purchases
- Simulate joint vs separate taxation if married
- Invest in PPR for the specific deduction
- Adjust withholding rate with your employer if needed
IRS deadlines in 2026
The deadline for submitting the 2025 IRS return (filed in 2026) runs from April 1st to June 30th, 2026. Refunds and payments are due by August 31st.
Frequently asked questions
Is the amount withheld from my salary the final tax?
No. Withholding is a prepayment. The final amount is only known after submitting the IRS declaration.
Can I get a refund if I have no withholding?
Only if you have other prepayments. Without money paid to the State during the year, there is nothing to refund.
