The main characteristics of the ‘deduction-at-source’ system have just been revealed and further details have come to such: this new reform will be included in the 2017 Finance Act. The ‘deduction-at-source’ of income tax will concern almost all French citizens (employees, retired, persons with income replacement benefits like unemployment benefits…).
The income tax will be paid at source according to a tax rate calculated by the Tax Administration. This rate will be based on the last income tax return, but the employee can ask the tax authority not to give to his employer his personal rate. In this case, a neutral rate tax will be used and if there is an additional due amount, the taxpayer will be able to pay it directly to the Tax Authority. Thus tax confidentiality should be maintained.
For a couple, spouses will have the possibility to choose two different rates according to their income. Self-employed and landlords with income from property will have to pay monthly or quarterly instalments calculated with the figures of the previous year. If there are important income changes, they will have the possibility to ask for an updating of the instalments.
Concerning tax credits and deductions, they will be considered from 1st January of the following year and not for the current year.
Finally, taxpayers will always have to fill in an income tax return each year and the progressive tax bands remain.
This new system will be tested in some companies and should come into force on 1st January 2018.