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French Withholding Tax System Goes Into Effect January 1, 2019

By Mavanee Anderson October 2018
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The French government recently sent a notice to all private and public employers confirming that its new income tax withholding system will go into effect on January 1, 2019. Originally scheduled to begin January 1, 2018, the withholding tax system was delayed for one year. France is one of the only developed countries in the world that does not currently collect income tax by requiring employers to withhold income tax from employees’ pay.

In a letter sent to French taxpayers, the French Minister of Public Action and Accounts (Ministre de l’Action et des Comptes Publics), Gérald Darmanin – who is responsible for overseeing the new withholding tax program – explained that withholding income tax at the source (i.e., when the taxpayer receives income) will enable the tax system to adjust more quickly to a taxpayer’s changing economic or family situation (i.e., income or life event). Currently, French taxpayers pay income tax one year in arrears; beginning in January, taxes will be withheld for the current year.

In France, almost half of compulsory contributions, mainly social security contributions and the general social contribution (CSG), are already deducted at the source (i.e., wage taxes). Beginning in January 2019, French employers that now collect wage taxes will be responsible for withholding income tax from employee paychecks. Each French taxpayer will receive tax credits for tax year 2018, so taxpayers will not be required to pay taxes for two tax years during the course of one calendar year. Tax year 2018, which will essentially be skipped, is being referred to as the white year (“l’année blanche”).

In September, the tax administration sent employee tax rates to employers. Employers were required to provide a government notice with pay statements (i.e., bulletins de paie) and could include the prefigured rates on pay statements. Employers can provide the prefigured rates on pay statements through January, but are not required to provide them on pay statements until January 1, 2019. Employees should contact their local income tax office if they have experienced changes in their income or life situation and, therefore, a change should be made to the rate. If a taxpayer does not contact their local tax office, the prefigured rate should be used by the employer beginning January 1.

Resources available
Withholding tax portal. To provide information and answer questions, the tax administration created a portal for withholding at the source at prelevementalasource.gouv.fr. A dedicated phone number also is available at 0811 368 368. Local income tax department agents also can answer withholding-related questions.

Withholding tax calculator. A withholding tax calculator is available, allowing taxpayers to calculate withholding tax by inputting their taxable monthly net income and their withholding tax rate.

What does not change
The withholding portal points out that the changes to the tax system only relate to how the tax is collected. The rules for calculating income tax and, therefore, the amount due for a year, will not change. The income tax schedule will remain progressive: it will always take into account all income received by members of a household. Deductions and tax credits will remain the same. Taxpayers will still file a tax return and tax notices will still be sent as before.