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Q&A: What the big change to income tax in France means for you

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Q&A: What the big change to income tax in France means for you
The French government will start taking taxes directly out of your income from January 2019. Photo: AFP
12:05 CEST+02:00
The French government has finally decided to push ahead with the long-planned reform to deduct income tax directly from workers' paychecks on a monthly basis from January 2019. Here's what the landmark change means for you.
There are some things you need to know before the French government starts taking your taxes directly out of your salary (called "prelevement a la source in French) at the beginning of 2019. 
 
Here's a list of the main questions and answers people are asking right now and if there are any missing that you would like information on, please email us at news.france@thelocal.com and we will answer them and add them in.
 
Will the change affect me?
 
The reform concerns nearly all taxpayers at all levels of income in France who are earning through their work or their pension. In all, some 38 million households are set to be affected by the change.  
 
From January 2019 income tax (called impôt sur la revenu in French) will automatically come out of salaries, pensions and substitute income, for example in the case of maternity leave, job seekers' allowance and sickness compensation. 
 
What if I'm self-employed?
 
Those who are self-employed will have to pay an advance to the French tax man, ether quarterly or monthly based on their revenues for 2018. The advances will then be adjusted depending on current monthly earnings.
 
But note that those self-employed workers registered as auto-entrepreneurs are not affected by the new income tax system if they already pay income tax through the Prélèvement Forfaitaire Libératoire (PFL).
 
If you work as both a salaried employee and an auto-entrepreneur then obviously the income from the salary will be taxed at source. 
 
Who will be responsible for deducting tax from my income?
 
This very much depends on the kind of income you receive. 
 
When it comes to salaries, pensions and substitute income (see above), tax will be directly deducted by the third party paying the income, for example employers, pension funds or the Pole Emploi (national job agency).
 
These third parties will be told how much to deduct by the tax authorities.
 
For those who are self-employed, the tax authorities will calculate the level of tax that needs to be paid directly to them in installments on a monthly or quarterly basis. 
 
Photo: AFP
 
Will my employer now become aware of my personal financial situation?
 
No, your employer will not know your financial situation, for example if you own property or have large sums of money saved up or handed down to you through inheritance. They won't know your family situation either e.g. whether you are married and how many children you have.
 
Employees don't need to give any private information to their bosses because all their personnal information linked to income tax should only be transmitted to the French tax man, as is the case currently. So any tax rebates or changes of tax codes will all be handled via the tax office, not the employer's payroll department.
 
The tax office will simply give your employer your tax code so they know what amount should be deducted from your monthly pay check, but this code does not reveal anything about your personal situation.
 
But what if I don't want my employer to know my tax code?
 
If you really don't want your employer to know your tax code then you can opt for a "non-personalised tax code". Although you will need to act quickly as the deadline is September 15th 2018. 
 
Having a "non-personalized" code means your employer will simply deduct a percentage of income tax based solely on the monthly salary they pay you, which won't take into account any other income you earn.
 
If you do have other income then it will be up to you to declare this separately to the tax man and then pay the bill.
 
How will it be more convenient?
 
At the moment we pay our income tax one year late (via a one-off payment or three or ten-monthly payments) but after the reform comes into effect in January 2019, we will pay automatically out of our salaries each month as we earn.
 
That means that in 2019 you will pay your tax for 2019 not 2018. 
 
Anyone whose tax situation changes during the course of the year, for example if they get a new job, are made redundant, get married or have kids, can immediately contact the tax office and have their tax contributions altered accordingly. 
 
So for example if a couple on low income has a second child in 2019 that means they fall below the tax threshold then the tax man can be notified about the change straightaway and their payslips will be adjusted.
 
In the current system the couple would have to wait until the following year to see their tax bill change.
 
That leads nicely on to our next question...
 
Photo: AFP
 
What do I do if my tax situation changes?
 
If for any reason your tax situation has changed, whether it's because you lost your job, got married or inherited a property, you contact the tax services either on their website, by phone or one of their centres and let them know. 
 
They will then calculate the new value of your tax contributions and send the new code to your employer or whoever deducts tax from your income. 
 
When will I find out how much I'm going to pay each month?
 
Hopefully you should know already or at least be able to find out because the tax authorities have calculated your monthly tax bill according to the declaration you made in 2018. You should have received an email or a letter alerting you to your new tax code.
 
That means those who declared their taxes online in 2018 should have been provided with the amount that will be taken out of their income each month at the time. 
 
And those who filled out the paper form should have received the amount with their tax assessment which should have arrived by the end of summer. 
 
If you still don't know or have forgotten, contact your local tax centre. 
 
What happens to my taxes if I am part of a couple?
 
In France, where people pay income tax by household, couples who are married or have been through France's civil union (PACS) will share the tax between their two salaries, so under the new system they will pay the same percentage of income tax on their salaries.
 
But in order to take into account income disparities within the couple, the spouses will be able, if they wish, to opt for a separate tax codes that reflect the amount they earn individually rather than as a couple. So for example the higher earner will pay a higher percentage of income tax than the lower earner.
 
French tax authorities insist this not an individualisation of income tax just an option to separate the amount of income tax owed to reflect each person's salary. It won't change the overall amount the household will pay.
 
So, will my monthly income drop?
 
Yes, if you are what is called "imposable" meaning you earn enough money to qualify to pay income tax. The levels are currently around €16,000 a year for an individual and €30,000 for a couple.
 
From January 2019 your monthly tax contribution will be taken out of your income directly and so you will receive less money each month. 
 
On the other hand, you won't have the hassle of paying a big tax bill at the end of the year. 
 
France to cut €11 billion in taxes next year
Photo: AFP
 
But will all this work with tax credits and reductions?
 
Many taxpayers in France receive tax credits for various reasons, whether linked to the cost of childcare, making environmentally friendly renovations to homes, employing cleaners or home carers or donations to charities.
 
Up until now these credits are included in the annual tax declarations which the tax man takes into account before sending out the final tax bill.
 
But under the new income tax plan the government plans to pay out advances to those eligible for credits (based on their 2018 declarations) in January 2019.
 
So those eligible taxpayers will actually get money into their account - roughly the equivalent of 60 percent of the tax credit. The rest will be paid in September.
 
What will happen if I have more than one employer?
 
The tax authorities will inform each of your employers how much they should deduct from the salary they pay you. 
 
Will the reform mean my taxes go up?
 
No. The reform is about modernising the way taxes are paid, bringing the country into line with most of Europe, not about raising taxes. 
 
I already pay my taxes in monthly installments -- what do I get out of it?
 
If you already pay on a monthly basis, the new system will mean you have a much more consistent income because those who pay tax each month under the current system pay just ten months of the year (from January to October) however from 2019, income tax payments will be spread over 12 months.
 
And the tax will paid at the end of the month, when you receive salary rather than in the middle of the month as is the case currently. 
 
There are other things to gain from the new system. 
 
For example, if your income drops sharply due to retirement, unemployment or because you've decided to start your own business, or if your family situation changes ( for example you get married), your tax contributions will change immediately.
 
French President Emmanuel Macron (R) with Budget Minister Gerald Darmanin (L). Photo: AFP
 
I am not liable to pay tax. Will any money be taken out of my income each month?
 
No. If you work but do not pay tax, the tax authorities will tell your employer that you owe zero percent of your income in tax. 
 
Can I choose not to be included in the reform?
 
No. 
 
Will I still have to fill out a tax declaration?
 
Yes -- sorry to be the bearers of bad news but even though your tax will be coming straight out of your income, the French government still expect you to make a tax declaration every year. 
 
This is so that an assessment can be made of all your income, combining salary, income from any property and any fluctuations in those amounts. 
 
It will also be a chance for the authorities to grant tax breaks for those who have donated to charity and tax credits, such as for those who have carried out energy saving work on their home. 
 
The declaration will work in the same way as before and taxpayers will be required to complete it in spring. 
 
However there will be one big difference -- from January 2019, everyone will be required to make their declarations online so no more of those pesky paper forms. 
 
Photo: AFP
 
Does all this mean I don't have to pay income tax for 2018?
 
So, if you pay your 2017 taxes in 2018 and in 2019 you start paying your 2019 taxes -- what happens to the income tax you owe for 2018?
 
Well, 2018 has been dubbed a "white year" which means that in order to avoid paying twice the taxes in 2019, the French taxpayer gets to skip 2018 except on "exceptional" income (see below). 
 
While it won't change much for those whose tax situation has stayed pretty much the same over the 2017-2019 period, the "winners" of the so-called "white year" -- in tax terms at least -- are people whose income is set to take a sharp drop in 2019. 
 
For example, if you retire at the end of 2018 -- you will have to pay taxes on your 2017 salary but from 2019 you will begin paying taxes only on your lower income not on what you earned in 2018 when you were still working. 
 
What counts as "exceptional" income?
 
While most people won't pay taxes on their 2018 income, there are some situations where people will have to cough up some cash. 
 
This taxable or "exceptional" income are sums that are likely to be one-offs for 2018, such as: 
 
- Compensation for breach of contract (in cases where the amount qualifies as taxable)
- One-off retirement allowances
- Income from stakes or profit-sharing schemes that aren't part of an employee savings scheme
- Capital gains on movable or immovable assets
 
So how much will I pay?
 
 
 
 
 
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