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Calculate personal income tax in France

The authorities calculate personal income tax on the basis of the amounts declared by taxpayers, who are required to submit a single return per tax household reporting all income received in the previous year.

In addition, those receiving income from professional activities (business profits, professional profits, agricultural profits), investment income, income from real property and capital gains on real property are required to attach special declarations to the overall return. The calculation of income tax takes the taxpayer’s personal situation into account.

The income tax calculation is adjusted to personal circumstance, inter alia, by means of an income splitting system (quotient familial) and by allowing taxpayers tax reductions or credits for certain personal expenses.

The income splitting system

Income splitting is a way of taking dependents into account and, accordingly, to cushion the effects of progressive taxation by applying the progressive rate to a partial income, namely taxable income per part.

The method involves dividing the tax household’s taxable income into a certain number of parts (e.g. one part for a single person, two parts for a married couple, an additional half-part for each of the first two dependent children and an additional part for each dependent child thereafter).

The progressive tax scale is then applied to the taxable income per part. The scale, corresponding to one part, is as follows (2008 income):

31/105 Portion of taxable income (one part) Rate (%)
Up to €5,852 0
From €5,852 to €11,673 5.5
From €11,673 to €25,926 14
From €25,926 to €69,505 30
Over €69,505 40

This partial tax is then multiplied by the number of parts to determine the gross amount of tax payable.
For an equal number of dependents, however, the tax benefit from the income splitting system increases with the amount of taxable income. The benefit is therefore capped, for income received in 2008, at €2,292 per half-part after the first two (as in the case of a married couple with one or more dependent children).

Calculating the net tax

The next step after determining the gross tax is to deduct any tax reductions and tax credits for which the taxpayer may be eligible, subject to the overall cap on tax relief.

Certain personal expenditures by the taxpayer that parliament wishes to encourage, in particular for social or economic reasons, give entitlement to a tax reduction or tax credit. The amount of the benefit corresponds to a given percentage of the actual expenditure, up to a ceiling. It is therefore independent of the amount of the taxpayer’s income. In addition, any surplus, on the tax calculated after deducting tax reductions, of the benefit arising from tax credits may be refunded. Taxpayers not liable to tax therefore benefit from this measure.

Tax reductions currently listed in the French Tax Code concern, for example, donations to charities and public interest bodies, the schooling costs of dependent children and subscription to the capital of small businesses.

Deductible tax credits are granted, for example, for childcare for young children, mortgage interest for the purchase of the main home, sustainable development-related equipment and personal care.

To encourage the return to work or continued employment, an earned income tax credit (prime pour l’emploi, PPE) is granted under certain conditions to taxpayers domiciled in France for tax purposes on their earned income. The tax credit is allowed against the amount of tax calculated after the deductions described above. Any surplus is refunded to the taxpayer in the form of a cheque drawn on the Treasury.

To reduce the time-lag between payment of the tax credit and receipt of the income on which it is calculated, it is possible to ask for lump-sum advances. Taxpayers who received a 2008 tax credit on 2007 income in the form of a Treasury refund may on request receive monthly payments from January to June 2009 equal to one-twelfth of the refund. The balance will be settled on payment of the tax on income received in 2008.

Taxpayers are informed of their net income tax liability several months after filing their income tax return by means of a notice of assessment sent to their domicile, which also states the payment date.

Tax is generally paid in two advance instalments and the balance, though taxpayers may opt for monthly instalments. Payment is made by direct debit of one-tenth of the previous year’s tax bill between January and October, the balance being paid in the last two months.

In addition to income tax, income received by persons domiciled in France is subject to levies introduced in recent years to supplement the funding of the social security system.

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Posted by on Feb 19 2011. Filed under Calculation, Calculation. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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