Understanding Income Tax rates and calculations in France

An overview of the French income tax system

The French income tax system is designed to be fair and equitable by applying a progressive rate structure. Individual taxpayers are taxed based on their total net income, while families have their taxable income split into parts called “quotient familial” according to the number of dependents. The income tax liability is then determined using the tax brackets and rates set up by the government.

Tax residency status and tax liability

Understanding the French income tax system is determining whether you qualify as a resident for tax purposes. If you meet certain criteria – such as having your primary residence or center of economic interest within the country – you may be considered a tax resident and be subject to income tax on your worldwide income. Conversely, non-residents are only taxed on their French-source income.

Progressive income tax rates in France

France uses a progressive tax scale, with rates increasing as one’s income rises. This taxation method aims to ensure those who can afford more contribute proportionally higher amounts than those with lower incomes. Here are the income tax rates applied in France:

1. Up to €10,084: 0%.
2. Between €10,085 and €25,710: 11%.
3. Between €25,711 and €72,189: 30%.
4. Between €72,190 and €158,122: 41%.
5. Above €158,123: 45%.

These rates are based on the 2021 tax scale to be applied to the income earned in 2020. Each year, these brackets are adjusted for inflation.

Additional surtaxes

In addition to the progressive income tax rates mentioned above, high-income taxpayers may be subject to extra surtaxes:

• Contribution Exceptionnelle sur les Hauts Revenus (CEHR): Introduced as a temporary measure, this surtax applies to those with annual taxable income exceeding certain thresholds – €250,000 for single taxpayers and €500,000 for households.
• Prélèvements Sociaux: This is a separate levy which finances social welfare programs. The current rate stands at 17.2%, and it applies to various sources of income including investments and rental properties.

Income tax calculation example

To better understand how taxes are calculated in France, let’s analyze a fictitious example:

Jeanne, a single French resident with no children, has a gross salary of €45,000 per year. She also receives €5,000 per annum in rental income from an investment property. In order to calculate her taxable income, she must first deduct any applicable deductions (e.g., personal allowance, professional expenses).

Assuming that Jeanne’s total deductions amount to €5,500 (including a baseline personal allowance), her taxable income would be €44,500. The tax brackets and rates are then applied as follows:

1. 0% rate on the first €10,084: 0.
2. 11% rate on the next €15,626 (€25,710 – €10,084): €1,718.86.
3. 30% rate on the remaining €18,790 (€44,500 – €25,710): €5,637.

Jeanne’s total income tax liability for the year will be €7,355.86 (€1,718.86 + €5,637).

Payment of income tax

In France, most taxpayers have their income tax deducted at source through a system called Prélèvement à la Source (PAS). This means that employers or pension providers directly withhold the relevant taxes each month before paying out salaries or pensions. Additionally, taxpayers may need to declare certain types of investment incomes, rental property revenues or capital gains via an annual tax return filing known as “Déclaration des Revenus”.

 

How to reduce your French income tax

There are several strategies for legitimately reducing your income tax burden in France, including deductions and credits:

Deductions

These expenses can be subtracted from your gross income to reduce your overall taxable base. Among the common deductions are professional expenses, alimony payments, specific healthcare costs not reimbursed by social security, etc.

Tax credits

Tax credits are amounts that can be offset against your final tax liability, reducing the overall amount of income tax payable. Some popular tax credits include investment in energy-saving improvements to your home, employment of domestic help, and childcare expenses.

Understanding the varied rates and calculating methods in France can undoubtedly be intricate. However, with a clear grasp of relevant rules, you will be able to make informed decisions about your financial obligations.