Sanctioned in November, the Income Tax (IR) reform comes into force this Thursday (1st). The new model, whichincreases the exemption range for around 15 million Brazilians who earn up to R$5,000 per monthbrings relevant changes for both workers and high-income investors and taxpayers.
The new rules affect everything from monthly salary withholding to the taxation of dividends. To compensate for the loss of revenue, those who earn more than R$50,000 per month will pay more Income Tax, as well as part of the people who receive dividends (portion of companies’ profits distributed to shareholders). In total, 141 thousand Brazilians, according to the government, will pay more income tax.
Regarding the Personal Income Tax Declaration, nothing changes for this year’s document, because the declaration refers to the base year 2025. Only in 2027 (base year 2026) will the new IR model be definitively adjusted in the declaration.
Next, see what changes in practice and how it can impact your pocket.
Who becomes exempt from IR?
The main change is the expansion of the exemption range:
- Monthly income of up to R$5,000: total exemption from Income Tax;
- Currently, the exemption only goes up to two minimum wages (R$3,036).
According to the government, around 15 million Brazilians are completely exempt under the new rule, which represents a tax waiver of R$25.4 billion.
Estimated savings:
Anyone who earns up to R$5,000 can save up to R$4,000 per year, considering their thirteenth salary.
Gradual discount for salaries up to R$7,350
The reform creates an intermediate range of tax relief:
- From R$5,000.01 to R$7,350 per month: partial exemption, with decreasing tax discount;
- Above R$7,350: nothing changes; follows the current progressive table (up to 27.5%).
The discount gradually decreases as income rises, avoiding the so-called “tax step”, when small salary increases generate large jumps in tax.
Practical examples:
- Salary of R$5,500: monthly tax drops by around 75%;
- Salary of R$6,500: approximate savings of R$1,470 per year;
- Salary of R$7,000: savings of around R$600 per year.
The exact amount of the discount depends on individual calculation and other income and deductions.
What changes in payroll deduction in January?
The change is felt immediately:
Those who qualify for the new exemption or partial discount no longer suffer full IR withholding on their January salary, paid at the end of the month or at the beginning of February.
Attention:
Even though exempt, the taxpayer will have to declare income tax in 2026, as the declaration will refer to the base year 2025, when the new rule was not yet valid.
Minimum tax for high income
To compensate for the loss of revenue, the reform creates the Minimum Personal Income Tax (IRPFM), aimed at high incomes:
- Annual income above R$600 thousand (R$50 thousand/month): falls within the rule
- Progressive rate of up to 10%
- Income above R$1.2 million per year: minimum effective rate of 10%
Government estimate:
Around 141 thousand taxpayers will be affected.
What goes into the IRPFM calculation?
- Salaries;
- Profits and dividends;
- Income from taxable financial investments;
In relation to salaries above R$50 thousand per month, this source of income generates a discount on the IRPFM payable, even included in the calculation base. This is because Income Tax has already been deducted at source, at a rate of 27.5%.
Stay out:
- Savings, Real Estate Credit Letters (LCI), Agribusiness Credit Letters (LCA), real estate funds, Fiagro and other encouraged investments;
- Inheritances and donations;
- Compensation for serious illness;
- Capital gains on the sale of real estate, except off the stock exchange;
- Late rent
- Amounts received cumulatively through legal actions;
The minimum tax will only be calculated in the 2027 declaration.
Dividend taxation
Another relevant new feature is the taxation of dividends at source:
- 10% tax withheld on dividends;
- Only when they exceed R$50 thousand per month;
- Amount paid by a single company to an individual.
Most investors will not be affected. The measure targets partners and businesspeople who received high amounts in dividends, which were previously exempt.
The withheld tax may be offset in the annual declaration.
Points of attention and possible disputes
Dividends relating to profits calculated until 2025 only remain exempt if the distribution has been approved by December 31, 2025. Experts warn of possible legal challenges, due to the possible retroactive effect of the rule.
>> Quick summary: what changes from this Thursday
- Total exemption of up to R$5,000 per month;
- Gradual discount up to R$7,350;
- Nothing changes for salaries above this;
- Minimum tax of up to 10% for income above R$600 thousand per year;
- Dividends above R$50,000 per month are taxed.
The reform redesigns income taxation in the country and is now beginning to be felt in salaries, but the full effects will only appear in the 2027 Income Tax Declaration.
