Brazil Raises Income Tax Exemption to R$5,000 as 2026 Rules Kick In

Overview

• The new law eliminates income tax for monthly earnings up to R$5,000 and grants a progressive discount for salaries between R$5,000.01 and R$7,350.
• For those now fully exempt, the government estimates savings of about R$312.89 per month, or R$4,067.57 over a year, compared with 2025.
• Although paychecks reflect the change from January, many taxpayers under the new threshold may still need to file this year because declarations cover the 2025 base year, with full incorporation in the 2027 filing cycle.
• To offset revenue losses, high earners face an additional annual levy on incomes above R$600,000 starting at 2.5% and rising to 10%, and certain dividends face a 10% withholding when distributions approved from January exceed that threshold.
• Public-sector impacts include 320,000 federal executive workers affected, with 141,802 benefiting from full exemption and 178,137 from the partial discount, and retirees 65 or older get an extra R$1,903.98 exemption that lifts their total tax-free amount to R$6,904.