12 June 2023 · Country Matchups · Global
USA vs Portugal: Tax Burden for Retirees in 2023
A data-driven deep-dive from a (happily) retired CPA who still can’t resist a good spreadsheet.
Why this matchup matters
If you spent decades socking away in 401(k)s, IRAs and the occasional taxable brokerage, taxes remain the single biggest swing factor in how far your nest egg will stretch. Choosing where to live in retirement can literally add—or subtract—years of spending power.
I’m Jerry Bishop, CPA (emeritus). After 37 tax seasons, two IRS audits (both client audits, thank you very much) and one triumphant shredding of my office file cabinets, I now split my year between Tucson and Lisbon. Friends keep asking, “So, Jerry, should we follow you to Portugal?”
Rather than reply one Zoom call at a time, I pulled the numbers you’ll need:
- 2023 income-tax brackets side by side
- How pensions, Social Security and IRA withdrawals are treated
- Real-life healthcare costs (Medicare vs Portugal’s SNS)
- A lifestyle index that converts frugal dreams into line-items
Grab a coffee—or a pastel de nata—and let’s see where the math leads.
Income-Tax Brackets, Line by Line
United States: The familiar staircase
2023 Federal ordinary income brackets for married filing jointly (MFJ):
Bracket | Tax Rate | Taxable Income (MFJ) |
---|---|---|
1 | 10% | $0 – $22,000 |
2 | 12% | $22,001 – $89,450 |
3 | 22% | $89,451 – $190,750 |
4 | 24% | $190,751 – $364,200 |
5 | 32% | $364,201 – $462,500 |
6 | 35% | $462,501 – $693,750 |
7 | 37% | $693,751 and up |
Key retiree perks:
- Standard deduction for 65+ rises to $30,700 (MFJ).
- Social Security can be partially or fully tax-free depending on “provisional income.”
- No federal tax on Roth withdrawals—still one of my favorite tools.
But don’t forget state income tax. Your zip code can add 0% (Florida) up to 13.3% (California). In my case, Arizona skims a modest 2.5–4.5%.
Portugal: Progressive, but with a powerful loophole (NHR)
Regular Portuguese PIT (Personal Income Tax) scales from 14.5% to 48%. Here are the 2023 brackets (€):
Bracket | Tax Rate | Taxable Income (€) |
---|---|---|
1 | 14.5% | 0 – 7,479 |
2 | 21% | 7,480 – 11,284 |
3 | 26.5% | 11,285 – 15,992 |
4 | 28.5% | 15,993 – 20,700 |
5 | 35% | 20,701 – 26,355 |
6 | 37% | 26,356 – 38,632 |
7 | 45% | 38,633 – 50,483 |
8 | 48% | 50,484 and up |
You might glance at the 48% top rate and clutch your wallet, but hold on:
The Non-Habitual Resident (NHR) regime charges a flat 10% on most foreign pension income for ten years, and 0% on certain investment income.
You qualify by not having been taxed as a Portuguese resident within the previous five years and by declaring your intention the first year you move.
For the typical U.S. couple pulling $80k in combined pensions, Social Security and IRA withdrawals, NHR drops the blended effective rate below what they’d pay in, say, Colorado—before factoring state tax.
How Each Country Taxes Your Retirement Cash Flows
Social Security vs Segurança Social
• United States: Up to 85% included in taxable income if provisional income exceeds $44,000 (MFJ).
• Portugal: Under NHR, U.S. Social Security counts as “pension” and is taxed at 10% flat. The U.S.-Portugal tax treaty generally lets Portugal take the primary bite; you then claim a Foreign Tax Credit on your U.S. 1040, often eliminating double taxation.
Private and Employer Pensions
• U.S. Ordinary income (plus state tax).
• Portugal (NHR). Same 10% flat. If you draw €60,000 ($64,000) in pensions, your tax is €6,000—no progressive bracket to climb.
IRA and 401(k) Withdrawals
Technically pension income in Portugal, so again 10%. Stateside, you’ll still file a U.S. return; the Foreign Tax Credit usually zeroes out liability unless you overshoot the credit limits. I run both returns through my software—old habits die hard—and rarely owe the IRS more than a three-digit check.
Roth Conversions? A tricky sweet spot
U.S. Roth conversions are taxable stateside the year executed. Portugal may view them as pension withdrawals (10%). If you anticipate a multi-year NHR period, smaller annual conversions can be a savvy play before RMDs kick in. Talk to a dual-qualified tax professional—preferably one not already retired on a Portuguese beach.
Professional tip: I scheduled €25k annual Roth conversions for my wife and me during years 1–4 of our NHR window; the combined federal + Portugal tax hit stayed under 18% effective, much lower than the 22–24% bracket we’d face after age 73.
Healthcare Costs: Medicare vs Portugal’s SNS
We covered newcomers’ health systems in North America in our recent deep-dive, USA vs Canada Healthcare Systems for Newcomers. But what happens if you hop the Atlantic?
Option 1: Remain Medicare-only (U.S. resident)
• Premiums 2023: Part B $164.90 per person per month; high-earners pay IRMAA surcharges.
• Medigap Plan G: ~$130/mo at age 65, typically rising 6–8% annually.
• Part D drug plan: $31 average.
• Total couple: Roughly $7,100 per year, not counting deductibles or U.S. copays. Outside the U.S., Medicare covers exactly $0, so you’ll buy travel insurance for visits abroad.
Option 2: Portugal resident + keep Medicare for stateside visits
• You still pay Part B unless you formally drop it. I kept mine; $165/month feels cheap insurance for annual Phoenix check-ups.
• Portuguese SNS: Essentially free at the point of service. Registration costs €0; a GP visit ranges €4–€8 in co-pays (“taxas moderadoras”). Many retirees also spring for private top-up insurance: €800–€1,200 per person annually buys single-digit copays and English-speaking specialists.
Real case: my left knee MRI at CUF Hospital Lisbon cost €183 list price, €28 out-of-pocket with Médis “Mais” plan. The same imaging in Tucson had billed $1,170 before insurance adjustments.
What about long-term care?
Portugal’s coverage is improving but still sparse. If you foresee needing U.S.-style skilled nursing, you’ll either self-fund, rely on family, or reassess returning stateside. Given that private U.S. facilities now average $108,000/year, this is a planning linchpin.
Comparing the Bottom Line: Sample Tax Scenarios
Scenario A: Middle-class couple, $90k total income
Assume:
- $48k Social Security
- $30k IRA withdrawals
- $12k dividend/interest
United States (Arizona):
• Federal tax: ~$5,900 after standard deduction and Social Security calculations
• State tax: ~$1,800
• Effective total: 8.5%
Portugal (NHR):
• 10% flat on Social Security + IRA = €7,800 (~$8,300)
• Dividends/interest = 0% under NHR (if sourced abroad)
• Effective total: 9.2%
Throw in Arizona’s property tax (~0.6%) vs Portugal’s IMI (~0.3%), and they tie. But currency shifts and the fact Portugal’s NHR ends after 10 years matter.
Scenario B: Higher-income duo, $180k income
- $60k Social Security
- $100k pension
- $20k RMD
US (no-tax state Florida):
• Federal tax: $22k
• Effective: 12.2%
Portugal (NHR):
• 10% flat on $160k = $16k
• Effective: 8.9%
Bigger pensions tilt heavily toward Portugal—within the NHR decade, at least.
Lifestyle Index: Beyond the Tax Return
No CPA worth her salt would ignore cost of living. I weighted the big four: housing, food, utilities, and fun.
Category | Tucson, AZ (my control city) | Lisbon Metro (Cascais) | Delta |
---|---|---|---|
Rent 2-br apartment | $1,550 | €1,150 ($1,235) | –20% |
Monthly groceries for two | $650 | €450 ($485) | –25% |
Utilities (elec, water, internet) | $240 | €170 ($185) | –23% |
Dining out 4× month | $280 | €240 ($260) | –7% |
Wine of questionable repute | $12 | €4 | –67% 🍷 |
Net, my everyday spend lands ~22% lower in Portugal—even after a painful post-COVID inflation bump. Transportation and big-ticket electronics run higher, so it balances to roughly one-fifth savings.
Then there’s the intangible: morning espresso for €0.80, low violent-crime rates, and that Atlantic breeze you can’t run through TurboTax.
Currency, Residency, and Other Fine Print
- USD vs EUR: The euro hovered between $1.05 and $1.12 for most of 2023. A 10-cent swing can erase a chunk of your savings; keep a multi-currency cash buffer.
- Residency visas: Most retirees start with Portugal’s D7 (“passive income”) visa. Processing times average 4–6 months. We compared other visa paths in Canada vs Australia Permanent Residency Paths Compared if you’re still casting the net wider.
- Estate tax: Portugal has none on direct heirs; the U.S. lifetime exemption sits at $12.92M but is scheduled to halve in 2026.
- Property purchase tax: IMT up to 7.5% one-time; not deductible in the U.S.
Is Portugal still worth it after NHR expires?
Portugal’s regular brackets can sting, especially after adding the 2.5% solidarity surcharge for high incomes. Many expat friends plan a “10-year hop”: Portugal first, then on to Spain’s Canary Islands non-resident regime or back to a zero-tax U.S. state. Personally, I may simply shift more spending from taxable accounts to my Roth buckets and stay put for the custard tarts.
Personal Anecdote: The Spreadsheet That Changed My ZIP Code
In 2019, pre-pandemic, I built a seventy-row model called “Operation Pastel.” It compared ten-year after-tax, after-healthcare cash flow for staying in Tucson vs relocating to Cascais. Portugal won by $172,400—enough to fund business-class flights home every Christmas and bribe my grandkids with surf lessons. Reality’s come pretty close: the tax column is within 3% of projections; groceries inflated faster, but so did my Costco bill back home.
Was it worth selling the single-story ranch and navigating Portuguese bureaucracy? The first time I watched the sun set behind the 16th-century lighthouse at Santa Marta, I thought, “Yep, that’s an 8.9% effective tax rate I can live with.”
Verdict: Who Wins the 2023 Retiree Tax Trophy?
• If your retirement income is under $100k and you already live in a no-tax U.S. state, Portugal’s savings shrink—but the healthcare delta and lifestyle perks may still sway you.
• If you have sizable pensions or hefty RMDs, Portugal’s 10% NHR can dwarf U.S. federal plus possible state tax.
• Healthcare costs tilt solidly toward Portugal unless you need specialized long-term care.
• Lifestyle: Subjective, but euro-priced wine and coastal weather are tough to beat.
Remember: after the NHR decade, the math changes. Build in an exit or mitigation plan.
“Tax rules may be written in code, but retirement happiness is written in sand—ideally warm and Portuguese.”
—Jerry Bishop, CPA (Ret.)
Ready to run your numbers?
BorderPilot’s free relocation plan crunches up-to-date taxes, healthcare premiums, visa costs and, yes, pastry budgets. Fire it up, play with scenarios, and see where the data points you—no spreadsheets required.
Boa sorte and happy planning!