On Monday, April 14, 2025, the federal government of Brazil published Provisional Measure No. 1,294/2025, which introduces significant changes to the progressive Income Tax table. This measure, signed by President Luiz Inácio Lula da Silva, aims to maintain the income tax exemption for individuals earning up to R$ 3,036 per month, which corresponds to two minimum wages. The new provisions will take effect starting in May 2025, but they will apply to income declarations made in 2026.
The most notable change is the increase in the exemption bracket, which will rise from R$ 2,259.20 to R$ 2,428.80. This adjustment is crucial, as it reflects the government's commitment to ensuring that low-income workers remain exempt from income tax, a policy that has been in place since 2024.
As per the new regulations, taxpayers earning between R$ 2,428.81 and R$ 2,826.65 will be subject to a 7.5% tax rate, while those with incomes between R$ 2,826.66 and R$ 3,751.05 will face a 15% rate. For salaries ranging from R$ 3,751.06 to R$ 4,664.68, the tax rate will be 22.5%, and any income exceeding R$ 4,664.68 will incur the maximum rate of 27.5%.
These adjustments were necessary due to the recent increase in the national minimum wage to R$ 1,518, as established by the Annual Budget Law (LOA) for 2025, which was sanctioned by President Lula on April 10, 2025. The LOA ensured a real increase of 2.5% compared to the previous year's minimum wage, reinforcing the government's commitment to adjusting the minimum wage above inflation.
In addition to the immediate changes, the government has proposed further reforms for 2026. A bill has already been submitted to the National Congress, aiming to raise the income tax exemption limit to R$ 5,000 per month. This proposal is currently undergoing legislative review.
The new Income Tax table will be implemented in May 2025, but it will only affect the declarations made for the 2025 calendar year. The Brazilian Congress has a period of 120 days to analyze the provisional measure. If the measure is not voted on within this time frame, it will lose its validity.
As of April 14, 2025, the Federal Revenue Service reported that approximately 12.2 million individual income tax returns for the 2025 calendar year had already been submitted. The expectation is that a total of 46.2 million returns will be filed by the end of the submission deadline. Taxpayers who fail to submit their returns by May 30 will face penalties.
The rules for mandatory declarations have also changed slightly. Individuals who received taxable income exceeding R$ 33,888 in 2024, as well as those with gross revenue from rural activities above R$ 169,440, will be required to file their returns. Additionally, operations in the Stock Exchange exceeding R$ 40,000 will also necessitate a declaration.
Since April 1, 2025, the pre-filled income tax return for the 2025 tax year has been available to taxpayers, streamlining the process by automatically including information about income, payments, and deductions. Taxpayers must have a government account with either gold or silver level access to utilize this feature.
Moreover, the income tax return for 2025 will see minimal changes compared to the previous year. The most significant adjustments involve the thresholds for mandatory filing, which have increased due to the updated exemption limits. The annual taxable income threshold requiring a declaration has risen from R$ 30,639.90 to R$ 33,888.00, and the limit for gross revenue from mandatory rural activities has increased from R$ 153,999.50 to R$ 169,440.00.
For those who submit their returns late, a fine of 1% on the tax due will be imposed, with a minimum penalty of R$ 165.74 or 20% of the amount owed, whichever is higher. Refunds for the 2024 tax year will be processed in five installments from May to September 2025, with the first installment scheduled for May 30.
Overall, these changes reflect the Brazilian government's ongoing efforts to adjust the income tax system to better align with the economic realities faced by its citizens, particularly those in lower income brackets. By ensuring that low-income earners remain exempt from income tax and adjusting the tax bands, the government aims to alleviate the financial burden on its citizens.
