If you've just started working and want to take advantage of the tax benefits reserved for low-income earners in their first few years of employment, the IRS Jovem could be the ideal incentive.
With this scheme, part of your income is exempt from tax: which translates into significant savings, provided you meet certain requirements.
In this article, I'll explain how the IRS Jovem works, the maximum amounts involved and what you need to do to avoid missing out on this opportunity. Read on to find out all about it!
What is IRS Joven?
The IRS Jovem is a special scheme provided for in Article 12-B of the IRS Code (CIRS), created to support young people starting out in their professional careers.
The idea is simple: for a period of up to five years, part of the income of these workers remains exempt from taxation, reducing the final amount of tax payable.
Throughout these first 5 years, the percentage of exemption and the maximum income you can benefit from vary.
The aim is to ease the young person's tax burden when their income is usually lower - and to help them become more financially stable at a time when they are often starting adult life.
Who can benefit?
To benefit from this exemption, it is crucial to meet several legal criteria:
- Age: As a rule, you must be between 18 and 26 at the start of the first year in which you apply for IRS Jovem. However, this limit can be extended to 28 or 30 if you have completed a higher education course;
- Tax residence in Portugal: You must be considered resident in Portuguese territory for IRS purposes, which means that you must be tax resident here;
- Type of Income: The scheme applies essentially to income from dependent work (Category A) or self-employment (Category B);
- Period of Application: The IRS Jovem is valid for a maximum of five years, consecutive or interpolated, as long as you continue to meet the conditions;
- Income limit: In each year of application, you are only exempt up to a maximum ceiling, which is linked to the Social Support Index (IAS).
This last condition is particularly important because if you exceed the overall income limit, you could lose all or part of your exemption for that year.
Pay close attention to this point!
What are the benefits of the IRS Joven?
Of course, the big advantage is that part of the income is exempt, which reduces the total IRS payable. But let's look at the figures.
To understand the impact of this measure, here's how the percentage progression works:
- 1st year of application: 30% exemption, up to a limit of 7.5 x IAS
- 2nd Year: 20% exemption, up to the same limit
- 3rd Year: 10% exemption, with the maximum ceiling remaining the same
- 4th Year: 10% exemption
- Year 5: 5% exemption
Understanding the concept of IAS
The value of the IAS (Social Support Index) changes every year. In 2023, for example, the IAS was approximately €480.43. Therefore, the maximum amount to which the exemption can apply (7.5 x IAS) was around €3,603 that year.
This means that, even if the young person has income well above that, the fraction exempt from IRS cannot exceed that amount each year.
How to apply for IRS Joven?
In order to actually benefit from this exemption, it's not enough to meet the conditions listed in this article; you need to mark IRS Jovem on your tax return (usually in Box 4 of Annex A or B, depending on the type of income) when you submit your tax return.
I've prepared a short step-by-step guide in case you need help with this process:
- Check Annual Eligibility: Check that you meet the criteria listed in this article (age, income, etc.) that year. Remember that you can take advantage of the scheme for up to five years, but these don't necessarily have to be consecutive, as long as you don't exceed the overall eligibility period;
- Filling in the Declaration: Fill in the annexes relating to your income correctly. There is a specific field where you must indicate that you want the IRS Jovem regime. Find out how to fill in the declaration on this website;
- Check Limits and Percentages: Calculate the partial exemption, taking into account the percentage that applies each year and the value of the IAS in force. If you have any questions about this, contact your accountant. If you don't have an accountant, we're here to help!
- Keep proof: In case of doubt, the Tax Authority may ask for evidence of your activity, age or income. Keep all this documentation organized to avoid mishaps.
I stress: if you don't feel confident, the best thing to do is to go to an accountant or a specialized firm that can guide you. Filling in the form incorrectly or not knowing certain rules could cost you the loss of a valuable benefit - and considerable financial losses at the end of the year.
Frequently Asked Questions
1. Can I take advantage of IRS Jovem and other deductions (health, education, etc.) at the same time?
Yes. Deductions (health, education and similar expenses) do not prevent the application of IRS Jovem. However, you must always respect the income limit in order to be entitled to partial exemption.
2. What happens if I exceed the limit set by the IAS?
The portion that exceeds the annual ceiling is not exempt. In other words, the exemption applies only up to the amount corresponding to 7.5 x IAS, depending on the percentages defined for each year.
3. I'm 27 and finished my master's degree last year. Can I still join?
It depends on the specific legislation of each state budget and the framework for those who have completed higher education. In many cases, the age limit extends to 28 or 30. It's worth checking each situation in turn.
4. Can I "recover" the IRS Joven if I forgot to mark it last year?
Generally speaking, if you didn't activate the exemption in the year due, you won't be able to apply it retroactively, unless you make a replacement declaration within the legal deadlines. You can still choose to apply it in other years, within the overall limit of five, if you remain eligible.
Common mistakes to avoid
One of the most common misconceptions is that the IRS Joven is automatic.
Another common slip-up is not checking every year whether the percentages (30%, 20%, 10%, etc.) and limits (7.5 x IAS) remain the same or have been changed by the new law. Failure to update personal data on the Finance Portal (address, start date of activity, etc.) can also result in the loss of the benefit.
Conclusion
The IRS Jovem is a powerful tool for those who are at the start of their professional careers and are looking for tax relief for a few crucial years. With partial exemptions of up to 30% in the first year, and annual limits indexed to the IAS, this scheme allows you to gain financial freedom to invest in your training, save or boost personal projects.
Even so, there are specific rules and strict deadlines that you can't ignore.
If you don't feel comfortable filling in the declaration yourself or if you want to be sure that you're not losing money through ignorance, you can count on BTOCNET's help: our team is ready to answer your questions, prepare your documentation and ensure that you activate the IRS Jovem correctly.
Register for help here and thank you for reading this article. See you soon!
