Private individuals

• Salaries, wages, pensions and annuities
• Industrial and commercial benefits
• Non-commercial profits

Each of those revenues is subject to tax. Let’s see how....

Your taxable income

It is the sum of the taxable income collected by the members of your household in the year (wages, pensions, annuities, professional profits, income property, gains on capital ...), minus the expenses incurred to perceive them (flat-rate or for their actual amount) and the deductible expenses.

Your number of shares

Your family situation (single, married, divorced...) and your dependents (minor children, major in some cases, disabled people living under your roof) determine the number of shares of your household. Your personal situation (age, disability, veteran status, lone parent) and that of your household members may entitle you to one or more additional half-shares.

The family quotient

It is from your family quotient that you determine in which tax bracket your income falls within the progressive income tax grid and therefore the applicable marginal tax rate. It is calculated by dividing your taxable income by your number of shares.

Once your family quotient is defined, we will just break it down according to the progressive scale of tax by applying to each of the fractions obtained the corresponding tax rate.

The rate that applies to the highest portion of your family quotient is the marginal tax rate.

For the 2020 revenues, the scale is as follows:

• The portion of your family quotient from 0 to € 10,064 is not taxed
• The portion between € 10,064 and € 25,659 is taxed at 11%
• The portion between € 25,659 and € 73,369 is taxed at 30%
• The portion between € 73,369 and € 157,806 is taxed at 41%
• The portion above € 157,806 is taxed at 45%

By applying the tax rate for each slice, you get the amount of tax for a family quotient. Your tax is equal to the sum of the amounts calculated for each slice... You must then multiply this amount by the number of shares in your tax household. This gives you the amount of your gross tax.

After taking into account, if applicable, the cap on the effects of the family quotient, any discount, and your tax credits and reductions, you obtain the net amount of the tax payable (or refund due from the tax authorities).

Be careful not to confuse marginal rate and average tax rate!

The marginal tax rate corresponds to the rate applied on the last income bracket, the lower bands being subject to the lower rates. It identifies the tax rate to which any additional income received by your tax household will be subject to up to next income threshold.

The average tax rate is calculated by dividing the amount of your tax payable (after deduction of credits and tax reductions) by your taxable net income. The average tax rate is lower than the marginal tax rate. It tells you the proportion that your tax represents in your income.

The income tax is being collected at source since January 1, 2019. The withholding tax rate for your tax household has been updated in September 2019, according to your 2018 tax return. Exceptionally, it will be also updated in January 2020 to incorporate the tax cut of 5 billion euros promised by the French President.

You can change your withholding tax rate at any time on impots.gouv.fr to take into account the evolution of your tax situation. You can also opt for the application of an individual rate if you are married or civil partners. Moreover, if you are an employee, you can ask the tax authorities not to communicate your withholding tax rate to your employer. The latter will then apply a default rate to your salary.

Withholding tax is a new form of income tax collection. But the methods of computing the tax are not modified by this reform. Your income received one year must always be declared to the tax authorities in the spring of the following year (except for households whose situation does not vary from one year to another), so that it applies the progressive scale of income tax.

So in May-June 2020, you will have to complete a 2019 tax return and in August-September 2020, you will receive your 2020 income tax return for 2019. You will then either have to pay a tax supplement (if you have not paid enough tax at source in 2019), get a refund from the tax administration (if you paid too much tax at source in 2019).

 Your financial assets  (shares, life insurance contracts, securities accounts ...) 

Interest on investments, dividends and capital gains on disposals are subject to the single flat tax, the 'IFU', at the rate of 12.8% plus social security contributions for 17.2%, ie a total of 30%.

Unless you opt for a tax on the progressive tax scale? (TMI + social security contributions). In this case, all your income will be taxed the same way: impossible to choose a tax system by type of income. What impact on your Reference Tax Revenue?

 Your real estate assets 

Your property income is de facto subject to the progressive scale (TMI + social security contributions). Same if your property is held via an real estate company subject to income tax.

The value of your real estate assets exceeds 1.3 M €? The IFI (tax on real estate fortune) opens its arms ...

The real estate capital gain? it is taxed at a flat rate of 19% + social security contributions and calculated on an amount that benefits from a variable deduction depending on the duration of ownership of the property sold.