French tax Residents : how your french income tax is calculated ?
Whether residing in France or not, if you receive income from a French source, such as rent, for example, you must declare this income and file a tax return in France. There is no reporting threshold, any income must be reported even if it is not taxable.
To determine your tax liability, the French tax authorities will first determine your total income, called your total “gross income”. Adjustments will then be made, to obtain your net taxable income. Your tax liability will be calculated gradually, depending on the composition of your household and the level of your income. The Income tax in France is calculated at the level of the “tax household”.
The household is composed of all the individuals collectively joined and constitute a single tax payer. Note that a single person may constitute a tax household. The tax is levied by the French government and concerns all income received by the member or members of the tax household (salary, property income, etc.).To be liable for income tax, you must be domiciled in France for tax purposes. Persons domiciled abroad for tax purposes may be liable to income tax in France when they receive income from French sources.
the Income-tax is progressive in France, the higher the income, the higher the rate. This tax is calculated on the basis of a scale updated annually. The scale consists of 5 brackets.The following table shows the rates for 2022 :
Let’s illustrate with a quick example !
Example: Your net taxable income is €90,000 for 3 parts (a couple with 2 children). The quotient is therefore 90,000 € / 3 = 30,000 €.
The first 10,225 Euros of this quotient are taxed at 0%, i.e. 0 € to pay.
From 10,225 € to 26,070 €, that is 15,596 € of quotient, the tax rate is 11%. This represents 15 845 € * 11% = 1.742 €.
And finally, from 26 070 € to 30 000 €, that is 3 930 €, the tax rate is 30%. This represents €1,179.
The total is 0 € + 1 742 € + 1 179 € = 2.921 €.
This is multiplied by the number of units in the tax household (3 units). This gives a tax liability of € 8,763.
If the couple had no children, their tax liability would be 90,000/2=45,000 €, i.e. 0+1742+5679=7421 € multiplied by 2 parts, i.e. 14,842 €.
The children allow to reduce the taxation of 6.079 € which is equal to the difference to pay if they had no children (14.842) and with children (8.763).
However, there is a capping mechanism of 1592 € per half of the family.
The difference between the tax with two parts and 3 parts can therefore not exceed 3,184 euros (1592*2).
6079>3184 : the ceiling applies.
The new tax is therefore 14.842-3.184=11.658 €.
You will have to pay €11,658 in taxes. From this figure you will then deduct your possible tax reductions and credits.
Expert-Comptable – Chartered-Accountant