The tax authorities determine the rate of withholding tax based on the latest income declared by the taxpayer. The latter can opt for an individualized rate or a neutral rate as it suits him. The election will not affect the final tax, but it will better manage tax-related expenses. It is possible to declare it to change the option at any time. We explain everything to you.
Taxes: why choose the neutral rate?
The tax authorities automatically apply the custom rate if the taxpayer does nothing. An employee can request the tax authorities not to report the tax rate of their tax household. This rate can reveal the employee’s other income to your employer.
It can also reveal whether the employee’s spouse makes a better living. If the tax authorities accept the request, the employer will use a neutral wage rate employed monthly. Take for example an employee living in metropolitan France with a net salary of 3,800 euros per month.
If your income falls, keep in mind that the tax authorities do not take this into account when calculating your withholding tax rate. guide your #Tax as accurately as possible by adjusting your direct debits without delay to fit your current situation https://t.co/LBaMGDpYSl pic.twitter.com/nH2yRnJDfX
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for salary between €3,543 Y €4,134the withholding tax rate is 13.8%. If the worker is married, the neutral rate may be applied to the only income of one of the spouses.
The Neutral Rate Effect on Cash Flow
The employee must think carefully before choosing the neutral rate. The latter does not take into account employee’s family expenses not your situation. Income taxes calculated using a neutral rate are typically higher than the custom rate.
An option that can be expensive for the employee. However, when the neutral rate is lower than the personalized rate, the worker is obliged to pay the difference to the tax collector. The latter even runs the risk of incurring penalties in case the payment of the additional payment is insufficient.
For a person who has never filed a tax return, the head of the company the neutral rate will apply. The same goes for an employee who has just been hired if the tax authorities have not yet transmitted him a personalized rate.
This would be penalty for the taxpayer since the neutral rate corresponds to the situation of a single person without children. To avoid paying an excess fee, you must request a custom fee calculation.
This calculation is based on an estimate of income of the current year and the family situation of the principal.
Taxes: why choose the individualized rate?
The tax household custom rate is often applied to earned income from people who are married or in a civil union. This option is not a problem if your income is similar.
If the income disparity is great, those who earn less are paid an expensive rate in relation to their income. With the individualized rate, on the other hand, the PAS varies depending on the income of each of the spouses. To request the application of the individualized rate, you must a formal request to the tax authorities.
When the tax authorities have transmitted the rate to the employer, they must apply it within a maximum period of 3 months. This will have no effect on the tax burden of the couplebut the shares will be different.
Example: A married couple whose husband earns 2,000 euros and the wife 4,000 euros net per month. The torque rate is 10.1% of your monthly income. This rate represents 404 euros of retention on account for women. Her husband on her part must pay 202 euros of PAS.
With a personalized rate, the husband will only have to pay 5.2% of his salary, that is, 104 euros. The woman, on the other hand, will pay a PAS of 504 eurosThat’s it 12.6% of your monthly income. The amount of tax withheld remains the same, but the payment is evenly distributed.
A more beneficial option
The individualized rate for calculating taxes is more beneficial for those who wish to obtain a salary increase. The employer will not see that the income of the employee’s spouse is greater than that of your employee.
Therefore, you will be more open to giving your employee a raise. In case there is a risk of separation, the individualized rate represents another benefit. After the breakup, the taxpayer will not have to bear a rate that is based on the salary of the two people.
Like the neutral rate, the individualized rate only applies to salaries or retirement pensions. The application of these rates not eligible for the rent of the property. If the worker’s income varies during the year, it will be necessary to request a downward or upward modulation of the housing tax rate.
So, it is necessary to confirm the desire to the application of an individualized rate. Thus, the employer will apply a new individualized rate based on the new salary amount.
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