Will pay-as-you-earn finally be implemented in 2017?

Upon his election to the presidency in 2012, François Hollande made pay-as-you-earn taxation one of his key campaign promises. It was not until 2016 that the Ministry of Finance (Bercy) moved to implement this reform, with it ultimately taking effect in January 2018 for all taxpayers. According to the Ministry of Economy and Finance, this reform is intended to simplify the lives of French taxpayers; however, economic experts agree that it is fueling widespread concern and doubt, as the details are not as clear-cut as the government suggests. While pay-as-you-earn taxation is already in place in many European countries, significant questions remain for French citizens, who are now awaiting further clarification from public authorities.

Key drivers behind this withholding tax reform

The State is not hiding it: this reform offers numerous advantages for the government. In effect, it will now allow for the collection of taxpayer funds in real time, without having to wait for the following fiscal year. In practical terms, this means that taxpayers will essentially be advancing money to the Ministry of Economy and Finance, which will only settle any potential overpayments several months later. On the other hand, taxpayers with fluctuating year-to-year incomes will no longer have to wait a full year for their income tax to decrease. This should prevent many households from facing precarious financial situations, while also making the tax collection process more transparent and easier to understand.

Taxpayers affected by the reform

According to the Ministry of the Economy, this reform will affect not only private and public sector wages, but also the income of the self-employed and non-salaried workers, as well as replacement income and rental income. However, real estate capital gains and dividends will be excluded from the scope of the reform, as they are already subject to withholding tax.

The employer will act as the third-party payer responsible for collecting income tax

This is undoubtedly the new development causing friction among employers, who fear both an increased accounting workload and additional costs. In effect, they will be responsible for collecting the tax, as the amount will appear directly on payslips, essentially acting as third-party payers. This responsibility will fall to pension funds for retirees and to unemployment insurance agencies for the unemployed. Finally, self-employed workers will be required to pay their income tax via installments, which will be collected on a monthly or quarterly basis.

The question remains whether income tax will be paid in 2017

Indeed, it appears that income earned in 2017 will not be taken into account by the tax authorities for the calculation of income tax. Starting in 2018, income tax will be withheld directly from the income received in 2018. Please note, however, that you will still be required to declare your 2017 income to the tax authorities. For self-employed workers, the tax authorities are expected to consider the previous three years; therefore, if 2017 proves to be an unusually profitable year, it could result in an additional tax liability.