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Brazil has implemented a new reduction in IRRF (Imposto de Renda Retido na Fonte) withholding tax along with a simplified deduction mechanism. This change will result in increased net pay for eligible employees by reducing the amount of income tax withheld at source. The specific eligibility criteria, reduction amounts, and effective date require confirmation from the full regulatory text.
Brazil reduces IRRF withholding tax and introduces simplified deduction, effective January 2026
Brazil has enacted Law No. 15,270 on November 26, 2025, reducing the monthly IRRF (Imposto de Renda Retido na Fonte) withholding tax and increasing the annual simplified deduction for individual taxpayers. The changes take effect on January 1, 2026, and will increase net pay for employees earning up to BRL 7,350.00 per month.
Who is affected
All employees and individual taxpayers in Brazil are affected by the IRRF reduction and simplified deduction changes. Employees earning up to BRL 5,000.00 per month will receive full exemption from monthly IRRF withholding (up to BRL 312.89 in tax reduction). Those earning between BRL 5,000.01 and BRL 7,350.00 per month will receive a partial reduction that decreases linearly to zero. Employees earning above BRL 7,350.00 per month receive no reduction.
High-income individuals are subject to new taxes: those receiving dividends exceeding BRL 50,000.00 per month from a single entity face 10% withholding tax on the total amount, and individuals with total annual income above BRL 600,000.00 are subject to a minimum tax regime starting with the 2026 calendar year (filed in 2027).
What's changing
Monthly IRRF reduction (effective January 1, 2026)
| Monthly taxable income | IRRF reduction |
|---|---|
| Up to BRL 5,000.00 | Up to BRL 312.89 (full exemption) |
| BRL 5,000.01 to BRL 7,350.00 | BRL 978.62 – (0.133145 × taxable income) |
| Above BRL 7,350.00 | No reduction |
Annual IRRF reduction (for 2026 calendar year, filed in 2027)
| Annual taxable income | IRRF reduction |
|---|---|
| Up to BRL 60,000.00 | Up to BRL 2,694.15 (full exemption) |
| BRL 60,000.01 to BRL 88,200.00 | BRL 8,429.73 – (0.095575 × taxable income) |
| Above BRL 88,200.00 | No reduction |
Simplified annual deduction: Increased from BRL 16,754.34 to BRL 17,640.00 for the 2026 calendar year.
New dividend withholding tax: Starting January 1, 2026, dividends exceeding BRL 50,000.00 per month from a single entity to a single individual are subject to 10% withholding tax on the total amount. Dividends from profits earned through December 31, 2025, and approved for distribution by that date are exempt if paid according to original terms.
Minimum tax for high earners: Individuals with total annual income exceeding BRL 600,000.00 are subject to a minimum tax regime starting with the 2026 calendar year (filed in 2027). The minimum tax rate is 10% for income of BRL 1,200,000.00 or more, scaling linearly from 0% to 10% for income between BRL 600,000.00 and BRL 1,200,000.00.
What NEO partners and clients should do
- Update payroll systems by December 31, 2025 to implement the new monthly IRRF reduction tables and simplified deduction amount for January 2026 payroll processing.
- Communicate changes to employees in December 2025, explaining how the IRRF reduction will affect their net pay starting January 2026. Employees earning up to BRL 5,000.00 per month will see the most significant increase.
- Review dividend distribution policies for shareholders receiving more than BRL 50,000.00 per month from any single entity. Consider timing and structuring of distributions to manage the new 10% withholding tax.
- Identify high-income employees (total annual income above BRL 600,000.00) who will be subject to the minimum tax regime and advise them to consult tax advisors for 2026 tax planning.
Sources
- Law No. 15,270 of November 26, 2025: https://www.planalto.gov.br/ccivil_03/_ato2023-2026/2025/Lei/L15270.htm
