French Income tax is calculated on the basis of an overall income defined as the accumulation of categorical income net of deductions and fees:
- professional income (salaries, BIC, BNC, BA, etc.) ,
- pensions, retirement and annuities
- and income from assets:
- income from movable
- property, property income
- gains es on transferable securities (real estate capital gains are subject to separate taxation, at source, and are not subject to the progressive scale of French Income tax).
This income may be reduced by tax deductions.
The net taxable income thus determined at the level of the tax household is divided by the number of shares making up this household, which makes it possible to determine the “family quotient”.
This family quotient is subject to the progressive tax scale which determines the tax relating to a share of income which is then multiplied by the number of shares to obtain the gross tax. The tax gain resulting from the application of the family quotient is, where applicable, capped.
On the gross amount of tax can then be applied:
- a discount for taxpayers of modest means,
- tax reductions and tax credits.
All household income must be taxed, including that of dependents.
Determining the tax due assumes the following calculation steps.
1. Taxable income Income
tax is calculated on the basis of an Overall Gross Income defined as the accumulation of categorical income net of deductions and costs: professional income (salaries, industrial and commercial profits, non-commercial profits , agricultural profits, etc.), pensions, retirement and annuities and income from assets (land income, income from movable capital, capital gains from the sale of securities). This gross income may be reduced by tax deductions such as, for example, alimony. We then obtain the Global Net Income.
Special allowances, in particular that reserved for the elderly or disabled, may be deducted from this income. We then obtain the Net Taxable Income.
2. Gross tax
From the net taxable income, the family situation and the number of dependents in particular, the family quotient is calculated by dividing the taxable income by the number of shares from which the taxpayer benefits.
This family quotient is subject to the progressive tax scale which determines both the marginal tax rate (TMI) and the tax relating to a share of income which is then multiplied by the number of shares to obtain the gross tax. If necessary, the gain on this tax linked to the application of the family quotient is capped.
However, some income is not subject to the progressive scale, but is subject to proportional tax deductions (certain income from movable property, certain capital gains from movable and immovable property, etc.).
3. Net tax to be paid
The gross tax thus calculated can first be reduced due to the application of the discount for taxpayers whose gross French Income tax does not exceed a certain amount.
After this possible restatement, the tax is reduced by the reductions and tax credits from which the taxpayer may benefit.
The total amount of tax benefits derived from certain tax schemes is capped overall at household level at a sum which is established, in principle, at €10,000 per year for expenses paid and investments made since 1January 2013 (18 €000 for overseas investments and the SOFICA reduction).
The general reduction of 20% from which certain modest taxpayers could benefit, after application of the discount, has been abolished as of the 2020 French Income tax
. 4. Social taxes
In addition to French Income tax, the taxpayer must also pay various taxes and levies, in particular the CSG, the CRDS and the solidarity levy on income from assets and investment products.