How does the withholding tax work?

With the deduction at source, the tax adapts to the situation of each taxpayer. A new law implemented since 1er January 2019, it consists of withholding income tax directly from the taxpayer’s salary each month. If before you had to declare your income before paying your taxes then, this is no longer the case today. Explanations of how the withholding tax works in 2020!

Understand what exactly is withholding tax

Prior to the year 2019, income tax was paid one year after the actual income was received. With the concept of withholding at source, the tax is paid during the same year concerned. Indeed, the principle being to avoid the delay during the payment of income tax, the deduction at source makes the payment more flexible, as it is contemporaneous with the collection of income.

After the various studies and analyzes carried out with taxpayers, the results have clearly shown that the tax payment delay could cause real cash flow difficulties. In this specific case, the payment did not adapt in real time to the income. A concern that can only be noted, especially when a taxpayer experiences a change in situation with significant impacts on their income.

The application of the withholding tax directive has thus made it possible to pay the tax at the very moment when the income is received. However, not all types of income are affected by this new law.

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How Does Debit At Source Work?

Deduction at source: the income concerned

There are cases where the tax authorities pass on to employers a 0% rate for income tax. Indeed, it is mainly about employees and similar non-taxable because of their family situation or because of their income. The withholding tax therefore only concerns a certain category of income, namely:

  • Wages
  • Treatments
  • Pensions
  • Replacement income
  • Self-employed income
  • Property income

This reform thus applies to employees as well as to the self-employed, and to active and retired people. What must be understood, however, is the fact that the methods of deduction are retained according to the nature of the income declared by the taxpayer. The tax rate is calculated by the tax administration, which also passes it on to third parties paying the income, such as employers and pension funds. On the other hand, for income tax for the current year, with regard to income from functions and self-employed persons, it may be the subject of an installment and paid each month or each quarter.

How The Withholding Tax Works Tips

The tax rate in the withholding tax

The tax administration remains the only body in charge of calculating the tax rates that will be levied on the income of a French taxpayer. Nevertheless, it must be understood that the declaration of income remains necessary, even compulsory, each year and always in the spring. This information effectively enables the tax authorities to take stock of all income while taking into account the various possibilities for granting reductions or tax credits. However, there is nothing that changes for the declaration of income. With an online declaration elsewhere, you can know your direct debit rate immediately. Thus, as a free taxpayer of his choice, you can choose between a non-personalized rate and an individualized rate. The application of a non-personalized rate can be based on the amount of remuneration paid into the taxpayer’s bank account.

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