IRS for Young People: The Complete Guide to Paying Less Tax in 2025

1. What is IRS Jovem?

The IRS Jovem is a special tax scheme that allows young workers to pay less income tax during their first years on the job. It was created with the aim of increasing the disposable income of young Portuguese people, making the transition into the workforce more financially manageable and encouraging them to stay in Portugal.

In practice, it works through a partial exemption on earned income. In other words, a portion of your salary is not taxed, which translates into real and immediate savings on your income tax.

2. Who is eligible for the IRS Jovem program?

To be eligible for IRS Jovem, you must meet a set of specific requirements:

• Age — you must be between 18 and 35 years old, inclusive.

• Not be a dependent — you cannot be listed on your parents’ or another household’s IRS tax return.

• Have completed a course of study — you must have completed at least high school (12th grade), a bachelor’s degree, a master’s degree, or a doctorate.

• Not have exceeded the limit for the scheme in previous years — IRS Jovem applies for a maximum of ten consecutive years, and each year has a different exemption percentage.

3. How much can you save with IRS Jovem?

This is the most important part. The IRS Jovem tax exemption applies to income from both employment and self-employment, and varies depending on the year you are in the program:

Year in the System Income Exemption

1st and 2nd grade 100%

3rd and 4th grade 75%

5th through 7th grade 50%

8th through 10th grade 25%

This means that during the first two years of the program, you pay virtually no income tax on your salary—within the limits established by law. In subsequent years, the exemption gradually decreases until the tenth year, when the program ends.

There is a maximum annual income limit for the exemption, defined as a multiple of the Social Support Index (IAS). It is important to check the updated figures for 2025, as these limits are adjusted annually.

4. How It Works in Practice

Imagine that João is 24 years old, has completed his bachelor’s degree, and started working this year with a gross annual salary of €20,000. This is his first year eligible for the IRS Jovem program, so he benefits from a 100% exemption on his income—within the legally established limit.

Without the IRS Jovem, João would pay a considerable amount of tax, depending on his income brackets. With the IRS Jovem, that tax burden is virtually eliminated for the first two years, representing savings that can amount to several thousand euros. Money he can use to build an emergency fund, invest, or simply enjoy a better quality of life while building his career.

5. How to activate IRS Jovem

Eligibility for the IRS Jovem program is not automatic. You must notify your employer and correctly report your eligibility on your IRS tax return. Here are the steps:

Notifying your employer: You must inform your employer that you are eligible for the IRS Jovem program. To do so, submit a written statement confirming that you meet the requirements. Based on this information, your employer will adjust your withholding taxes—which means you’ll receive more money in your monthly paycheck right away, without having to wait for the annual refund.

Annual IRS Return: When you file your IRS return on the Finance Portal, you must select the option for IRS Jovem in Annex A (for employees) or Annex B (for self-employed individuals). The system will automatically calculate the exemption to which you are entitled.

Pay attention to the deadline: The IRS return must be submitted between April and June of the year following the tax year in question. Don’t miss the deadline to avoid fines.

6. Youth Income Tax for Self-Employed Workers (freelancers)

The program isn’t limited to employees. If you issue freelance invoices and are eligible, you can also benefit from the IRS Jovem program. In this case, the exemption applies to Category B income, and you must report it in Annex B of your annual tax return.

It’s important to note that, as a self-employed individual, your withholding tax isn’t automatically adjusted—so the benefit is primarily reflected in your final IRS settlement, which may result in a refund or a significant reduction in the amount due.

7. Common Mistakes That Can Cause You to Lose Your Benefits

There are situations that could cause you to lose your eligibility for the IRS Jovem tax credit or result in the benefit being applied incorrectly:

• Failing to notify your employer — if you don’t inform your employer, they will continue to withhold taxes as if you were not eligible. You won’t lose the benefit, but you’ll have to wait for a refund on your annual tax return instead of receiving the extra amount in your monthly paycheck.

• Remaining a dependent on your parents’ tax return — as long as you are listed in your parents’ household, you are not eligible for the program. Make sure you file your own tax return independently.

• Failing to fill out the tax return correctly — a mistake in filling it out can result in losing the benefit for that year. If in doubt, consult an accountant or tax advisor.

• Exceeding the exempt income limit — if your annual income exceeds the established maximum threshold, only the portion within the limit will be exempt. The excess is taxed as usual.

8. Is it really worth it? Our analysis.

The simple answer is: yes, and by a lot. The IRS Jovem is one of the most generous tax benefits available to individuals in Portugal, especially in the first two years, when the exemption can be total. For a young person starting a job with an average salary, the savings accumulated over the ten years of the program can amount to a very significant sum.

The most important thing is to take action from the start—notify your employer, fill out the tax return correctly, and don’t let any of the available exemption years go to waste. Every year that passes without applying the scheme is money you won’t get back.

9. Conclusion

IRS Jovem is a real opportunity to start your professional life with more money in your pocket. In a country where the cost of living keeps rising and where young people face serious challenges when becoming independent, this benefit can make a huge difference—especially when combined with good financial habits like building an emergency fund or starting to invest early.

Don’t put off until tomorrow what you can do today. Check if you’re eligible, let your employer know, and make sure IRS Jovem is working in your favor starting now.

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