Income tax: this new withholding tax rate implemented since September 1

Impôt sur le revenu

.;Each year, the withholding tax rate is automatically updated. Indeed, the tax authorities do it twice: on September 1 or January 1… Unless you have updated it yourself. In this case, the rate calculated on your initiative remains valid until the end of the current year.

Like the majority of taxpayers who declared their income online, you received your tax notice in your personal space on www.impots.gouv. Your declaration allowed the tax authorities to update your withholding tax rate on September 1st. What are the changes what to expect on the payslip? What is your withholding tax rate today?

What is the withholding tax?

The deduction at source of income tax entered into force on January 1, 2019, in accordance with ordinance no. 2017-1390 of September 22, 2017.

The withholding tax consists of deducting the tax before payment of the income. Thus, the amount of tax is deducted each month from the payslip. So the payment is spread over twelve months and the one-year lag removed. In addition, the tax automatically adapts to the amount of income received.

However, on the declaration side, nothing has changed. Each taxpayer continues to declare every year, in the spring, the income of the previous year to the tax authorities.

The calculation of the withholding rate is based on the data appearing on the income tax declaration. Example: income, dependents, deductible expenses, expenses eligible for tax credit, etc.

Every year, the withholding tax rate for taxpayers changes. Based on 2021 earnings reported in spring 2022, the General Directorate of Public Finance (DGFiP) updates percentage.

This is a change effective September 1. The latter can lead to changes on the pay slip from August. The taxpayers concerned can, however, modulate the rate of withholding tax themselves if they deem it useful. Indeed, if you have updated it yourself, in this case, the calculation of the rate at your initiative remains valid until the end of the current year.

Therefore, without updating on your part, the withholding tax rate that will be applied to you is likely to have been updated, automatically, on September 1st.

It is therefore better to check that this deduction rate taken from last year’s data (2021 income) still corresponds to your situation and your 2022 income.

What to do to anticipate?

In the case of an increase in income this year, it may therefore be preferable to increase your withholding tax rate so as not to find yourself obliged to pay additional tax in the fall of 2023.

Conversely, if your income has dropped or your tax situation has changed (birth, attachment of a dependant), it is necessary to revise your deduction rate downwards so as not to advance too much tax each month and wait summer 2023 before getting a refund.

Whatever the case, all you have to do is go to your personal space on the site then in the section ” manage my updated withholding tax following an increase or decrease in your income “. Please note that you can only reduce your tax rate if the difference between the planned tax and the new estimated amount is greater than 10%.

So nothing better than the government simulator to make sure. Know all the same that the administration tolerates an error of appreciation of the drop in income which can go up to 10%.

If your income is updated upwards, you must estimate your net taxable income for the current year. On the contrary, in the event of a drop in your income, the net taxable income received in year N-1 must also be entered. And this, in addition to the estimate of your net taxable income for the current year.

At the end of this online modification process, a new direct debit rate will be calculated. Then the tax administration sends it to the organizations that pay you income. If you are an employee, the new withholding tax rate is generally quickly taken into account by the employer and within a maximum period of 2 months.

A concrete example for withholding tax

Here is an example that will make this whole procedure more concrete:

If your family or financial situation changes at least from January of year N.

  • Either you immediately declare this change to the tax authorities. Thus, your direct debit rate will be modified within three months, i.e., at the latest, in May of year N.
  • Either you do not declare anything to the tax authorities. Thus, your change of situation will only become known when you file your income tax return for year N. That is to say in April or May of year N+1. And, of course, your new withholding tax rate will only be effective in September of year N+1. That is nearly 20 months after your actual change of situation.

We therefore advise you, whatever the case, to declare each change as soon as possible because there are modifications which may be important!

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