Income Tax (IR) exemption for those with health problems will be limited to those earning up to R$20,000 per month, Finance Minister Fernando Haddad announced recently. The measure is part of the Income Tax reform to be sent by the government together with the mandatory spending cut package.
The minister, however, clarified that the 100% deduction of medical expenses from the Income Tax declaration is maintained.
“There are some distortions that we are correcting in relation to health. Health expenses will continue to be fully deductible. But the exemption from IR for health reasons will be limited to those who earn up to R$20,000 per month”, said the minister at a press conference to explain the measures announced on Wednesday night (28).
According to Haddad, in addition to the increase in taxes for those who earn more than R$50,000 per month, the restriction on exemption from Income Tax for those with health problems will obtain the R$35 billion needed to fund the increase in the exemption range for those who earn up to R$5,000 per month.
When starting the interview, Haddad stated that the second phase of the tax reform, which deals with income, should not be confused with the spending cut package. The minister clarified that the changes to IR will be discussed over the next year to come into force from 2026.
“The income reform will be valid from January 1, 2026, as well as the [reforma tributária] of consumption. We understand that it could be processed next year, which has a lighter legislative agenda and is not an election year. It’s a peaceful year”, he explained. Haddad also criticized financial market estimates that indicated that the tax waiver would be R$70 billion with the increase in the exemption range.
As in his speech on radio and television on Wednesday, the minister reiterated that the changes to Income Tax will have a neutral impact on government revenue. “Tax reform does not aim to either increase or decrease revenue. This principle was respected by the National Congress in relation to consumption. And yesterday we made it clear that this principle will also have to be respected in the income reform”, stated Haddad.
Regarding the increase in the exemption range, Haddad explained that the government will not correct the entire Income Tax table. According to him, the Federal Revenue will apply a discount range, similar to that currently adopted, to create a graduality that does not excessively punish those who earn more than R$5,001.
Currently, the maximum zero rate limit is set at R$2,259.20. However, to guarantee exemption for those who receive up to R$2,824, equivalent to two minimum wages, there is a simplified discount of R$564.80 from the income on which the tax should be levied. This discount corresponds to the difference between the two values: exemption limit and two minimum wages.
