Everything you need to know about withholding tax

Introduced from 2018, the withholding tax was one of the major tax reforms in France. Concerning a large majority of people receiving earned income in France, this method of deduction simplifies and facilitates the payment of income tax for the taxpayers involved. What is withholding tax? How is its rate calculated? Who are affected and how can they benefit? Discover the answers to all these questions through this article prepared by the F3NWS.fr team.

Withholding tax, What is that ?

The withholding tax is a reform of the method of levying income tax in France. Prior to 2018, income tax was paid with a one-year lag. For example, income tax collected during 2017 was paid in 2018. This lag is a major disadvantage for taxpayers. Indeed, the changes that may occur between the year of receipt of the income and that of the related income tax payment put the taxpayer in difficulty. This includes :

  • Changes in family situation (marriage, birth of a child, death, etc.)
  • Changes in professional situation (loss of employment, retirement, parental leave, fluctuations in activity for the self-employed, etc.).
  • Changes for landlords (unpaid rents, exceptional charges, etc.).

To help them pay their taxes, the withholding tax eliminates this discrepancy so that taxpayers can pay the taxes relating to their income in the same year. Thus, the tax authorities will collect the income tax collected in 2020 during the same year. Follow this link for our tips for reducing your taxes.

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All About Withholding Tax

What is the difference with the ordinary monthly payment?

The withholding tax takes into account the monthly payment of taxes. Indeed, the basis for calculating the tax remains the same taking into account the average income of the taxpayer during the year. However, the withholding tax adapts better to changes in the taxpayer’s situation. For example, an employee couple who gives birth to a second child during 2020 is no longer taxable for that year.

This change in situation will be taken into account from the quarter following the declaration to the tax authorities. Thus, the household will not pay income tax for the current year if their income does not exceed the ceilings in force. If you are single, find here the tips to reduce your taxes according to your marital situation.

Who is affected by the withholding tax?

The withholding tax concerns the vast majority of income. So you could take advantage of this type of direct debit if you receive:

  • salary or wages
  • A pension
  • replacement income
  • Income from independent activities
  • Land income.

If you are an employee or if you receive a pension or replacement income, the deduction at source will be made by the third-party payer in charge of the payment.

All About Withholding Tax Tips

Should you file a tax return with withholding tax?

The annual tax return remains essential even if you take advantage of the withholding tax. It will be used to take stock of your income during the year. The income tax return is also useful for assessing your rights to tax reductions or credits. You can file your tax return online to save time. To do this, follow our guide to completing your first tax return.

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