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Understand the changes to Income Tax 2026 and how they can impact your income
On March 18, 2025, the federal government sent a bill to Congress that extends the Income Tax exemption for workers with income of up to R$5.
In addition, it provides for progressive discounts for those who earn between R$5 and R$7, benefiting millions of Brazilians. The new rule will come into effect in 2026.
Therefore, to compensate for the loss of revenue, the government proposes, firstly, to tax large fortunes and, in addition, the profits distributed to shareholders. As a result, it seeks to make the tax system fairer and, consequently, more balanced.
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The Ministry of Finance stated that, in this context, the proposal is part of the reforms initiated in November 2024. At the time, measures were also announced to consequently increase tax progressivity.
How will the new Income Tax exemption work?
Currently, the income tax exemption bracket is R$2.824. With the approval of the project, this limit will rise to R$5.000, benefiting workers.
The new table, therefore, fully exempts those who earn up to R$5.000. In addition, there are progressive discounts for incomes between R$5.500 and R$6.500. On the other hand, for incomes above R$7.000, the current rate is maintained, which, therefore, preserves the taxation already in place for this salary range.
The government will implement the change gradually, ensuring sustainable management of the impact on revenue, balancing fiscal policy and maintaining economic responsibility.
Impact on the economy and the middle class
The extension of the Income Tax exemption seeks to stimulate consumption, reduce taxation on workers and strengthen the economy.
According to FGV, the benefit will reach approximately 20 million Brazilians, consequently increasing their purchasing power.
Furthermore, this increase will directly contribute to the growth of the goods and services sector, thus generating a positive impact on the economy.
Furthermore, the proposal meets the campaign promises of President Lula, who defends a more progressive and fair tax system.
How does the government intend to compensate for the tax waiver?
To balance the loss of revenue, estimated at BRL 25,84 billion in 2026, the government proposed the progressive taxation of the so-called “super-rich”. The government will apply the new taxation to those who earn more than R$600 per year, with a progressive rate between 2,5% and 10%, depending on income.
According to the Brazilian Institute of Economics at FGV, this measure could raise up to R$27 billion in two years, balancing the accounts without harming social investments.
Impact of the proposal in Congress and in the market
The proposal generated various reactions. On Congress, party leaders indicated that the project will undergo adjustments before the final vote. The Speaker of the Chamber of Deputies, Hugo Motta, therefore stated on March 18, 2025, that the Legislature will support the government; however, it will make adjustments to ensure accountability. Furthermore, in the financial market, according to an analysis by the Central Bank, the proposal impacted the dollar exchange rate and, consequently, generated volatility, especially after the announcement of the taxation of dividends. Thus, economists from the Ibre-FGV warned that, although the measure is progressive, it could, on the other hand, influence the attraction of foreign investment.
Expected benefits of the new tax policy
If approved, the extension of the Income Tax exemption will reduce the tax burden, stimulate consumption and contribute to a fairer fiscal balance.
In this way, the measure could generate positive impacts on the economy, benefiting both taxpayers and the government.
CNI experts indicate that the text may undergo technical adjustments before approval, requiring strategic negotiations by the government to ensure greater consensus in Congress.
