Tax – Impôts – Return – Credits
Since January 1st, 2019, the French tax residents pay their taxes under a withholding tax system, or in simple terms, a pay-as-you-earn basis (PAYE).
The calculation of the income tax that you already paid is no longer based on your 2020 declaration, but on an estimation made by the tax administration, without reduction or abatement. Your declaration in 2020 will come to adjust the amount paid.
Therefore, for the taxpayers, the stake of this tax period is to carefully filing their French tax return and make sure to get the best refund, according to their situation.
Are you prepared to perform this exercise in 2020? What do you need to know to file your French tax return properly? Do you even need to fill out a French tax return in your specific situation?
Here is a guide to understand the basic implications of the tax return filing in France, in 2020.
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- The tax procedure in France
- Who must fill out a French tax return?
- Why to declare taxes in 2020?
- What is taxable? Identifying your taxable income
- How to reduce the amount of taxes due? A three steps approach.
- How high is the income tax to be paid on your 2019 revenues?
- Next steps – About your tax assessment
The Tax procedure in France
Since April 20, the French taxpayers have the possibility to declare their 2019 income. Here are the deadlines that you should keep in mind for the filling out of your French tax return, depending on the region you live in:
- Thursday, June 4: for the regions from 1 to 19 and all non-residents
- Monday, June 8: for the regions from 20 to 54
- Thursday, June 11: for the regions from 55 to 976.
How to declare your revenues
In France, the main form to declare the individual income is the 2042 form. All the revenues and charges must be declared on that form, as well as some essential information related to the taxpayer’s personal situation.
Depending on your situation, complementary forms may need to be filed in addition to the 2042:
- Revenues from a business activity (sales or services): 2031 form
- Revenues from any other independent activity: 2035 form
- Independent/freelancer under the “micro-entrepreneur” tax regime: 2042C form.
- If any Real-Estate revenues: 2044 form
- Foreign income: 2047 form
- Capital gains: 2074 form
- All bank accounts outside of France: 3916 form
Who must fill out a French tax return?
Not everyone needs to file a tax return in 2020
Compared to the previous years, not everyone needs to file a tax return in 2020.
The taxpayers who declared only revenues known by the fiscal administration in 2018 and who are in the same situation regarding their residence and family situation, are exempted from their declaring obligation. Which does not mean that one should not fill out a tax return (see below, “Why to declare taxes?”).
If the concerned taxpayers choose not to file a French tax return, the taxes due will be calculated based on the information provided in 2018.
Considering tax residency
Apart the situation described above, an individual will have to file a tax return as soon as the criterions of the tax residency in France are verified. Especially, a person is considered a resident in France if one of the following conditions is fulfilled:
- France is your principal sojourn place or your permanent home.
- The professional activity is carried out in France.
- The center of your economic interests is in France.
- You spend most of your time in France, compared to other countries.
Why declare taxes in 2020?
The Pay-As-You-Earn system for everybody
Introduced in 2019, the Pay-As-You-Earn system has every taxpayer paying their taxes directly at the source of their income. The amount of withholding tax paid in these conditions has been calculated based on the income declared in 2018.
However, a tax declaration is still needed for the following reasons:
- A discrepancy is still possible between the information at the disposal of the tax administration and your actual income in 2019 (for example: after double checking with your December 2019 payslip, if you are an employee). Filling out a French tax return will allow the tax authorities to do the necessary adjustments on the taxes to be paid.
- The amount of taxes to be paid at source for the rest of the year will be adjusted as well, based on your tax return.
- You can benefit from an advance payment from the fiscal administration if you are eligible to recurring tax credits.
- You may be eligible to a refund on the taxes paid with regards to your actual 2019 income in case of change in your financial situation or if you decided to optimize your tax return this year.
Penalties in case of non-filling of a tax return
It is important to note that a late tax return submission exposes you to penalties, if any revenues not known by the tax authorities.
The first level of penalty is a 10% raise on the due income tax. If there is no tax return filed within 30 days following a formal notice, the penalty will raise to 40% of the due income tax.
What is taxable? – Determining your taxable income
All your earnings in France
As soon as you are considered a French tax resident, your overall earnings sourced in France will be taxable.
- Employment income
- Alternative revenues such as pension, unemployment income …
- Interests payments
- Dividends and any investment income
- Revenues from a Real Estate good
- Business income
How to reduce the amount of taxes due? – A three step approach.
Your personal situation matters
Based on your personal situation, the tax authorities will determine a “quotient familial” (family quotient), which will correct the amount of taxes due. The tax benefit increased for the high family quotients. Therefore, it is important to consider declaring your personal situation accurately.
Some specific situations will need a deeper analysis, such as the integration of an adult child into your “foyer fiscal”, filling jointly for the couples who got married in 2019, or regarding a child residing alternatively between two or more households.
The charges deductible from your taxable income
Without any action from your side, if you are an employee, the fiscal administration will apply a 10% lump-sum deduction to your income. For the taxation of your 2019 revenues, this deduction is capped to 12 627 euros.
If you undergone charges for your professional activity that are higher than this amount, you may consider an option for the “frais reels” (actual costs). It is important to note that with opting for the deduction of your actual costs, you are not going the easy way. It will be necessary to establish an exhaustive list of the charges exposed in 2019 (with supporting documents at hand) and add back to your taxable income any costs that were reimbursed by your employer. Make sure that the expected deductible amount is worth the effort.
Reducing the amount of due taxes: the tax credits
Some expenses undergone by the households are eligible to a tax credit, such as the expenses related to the house staff, childcare or scholarship of the children.
Those tax credits will directly reduce the amount of taxes to be paid. Here are a few examples:
- Childcare: if you have children aged less than 6 years old you are eligible to the related tax credit. As such, 50% of the related expenses will be deductible to the income tax due (with a cap of 2300 euros per child, 1150 euros if the child is in alternate residing).
- House staff: if you hired house staff in 2019, you could claim 50% of the related expenses as a tax credit. The salary to consider for this tax credit is capped at 12 000 euros per year or 15 000 euros for the first year. It can be related to the employment of a gardener, a maid, to private lessons taken at home …
- Donation to a charitable organization: you probably already know this one if you donated in 2019, as you should have received a receipt, in order to claim this tax credit. You can claim 75% or 66% of the amount of the donation, depending on the charitable organization you donated to and the amount of the donation.
The French tax law includes more than 400 tax credits. The examples explained above are among the most common recurring tax credits that you should claim, according to your situation.
How high is the income tax to be paid on my 2019 revenues?
A progressive taxation
The taxation of the personal income in France, either for French or foreign nationals, is calculated under a logic of progressive rates. The higher your taxable income, the higher the tax rates you will be taxed under.
For the taxation of the 2020 personal income, the tax rates are as follow:
The tax credits, that you are eligible to, will be applied on the result of the calculation of your income tax. In that sense, they are direct fiscal advantages that will reduce the amount of taxes that will figure on the final line of your tax assessment.
Financial income is treated differently
Your income out of a financial activity will be taxed separately, under a specific tax rate. This financial income includes dividends, savings and any income resulting from investments.
The tax rate for this category of income is 12,8% (in addition to the social charges at a 17,2% rate).
About your tax assessment
When will I receive my tax assessment?
Your French tax return is verified and submitted? First, it is good to know that you can still do modifications on your declaration before the submission deadline applicable to your region.
For 2020, there is no fixed date for receiving your tax assessment. Generally speaking, they are sent along the summer.
Can it happen, that I must pay an Income Tax in addition to my tax at source?
The filling out of your 2020 tax return will not lead to a new taxation on your personal income. The PAYE system act as a pre-payment of the actual amount of taxes that you must pay, based on your 2019 revenues.
However, in case of unanticipated changes in your financial or personal situation (you got promoted, or one of your children left your household), the due amount of taxes can increase compared to last year. In this situation, the tax paid at source may not be enough to cover the new amount of taxes, and you will be entitled to a complementary payment.
Any complementary payment should occur by September 15 as per the deadline determined by the fiscal administration.
Additionally, for any error on your tax assessment or correction on your tax return, you have the possibility within 2 years to file a claim to the tax authorities.
How should I fulfill my complementary payment obligation?
You received your tax assessment and you are entitled to a complementary payment. Here are the different payment methods:
- One-time payment directly on the website of the fiscal administration.
- Delayed one time-payment.
- Fragmented payment on a monthly basis.