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

Impôt sur le revenu

.;Each year, the withholding tax rate is updated automatically. In fact, the Treasury does 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 most taxpayers who declared their income online, you received your tax notice in your personal space at www.impots.gouv. His declaration allowed the tax authorities to update his withholding tax rate on September 1. What are the changes expected in the payroll? What is your withholding tax rate today?

What is withholding tax?

The income tax withholding came into force on January 1, 2019, in accordance with Ordinance No. 2017-1390 of September 22, 2017.

The withholding on account consists of deducting the tax before paying the rent. Thus, the amount of the tax is deducted each month from the payroll. Therefore, the payment is distributed over twelve months and the one-year delay is eliminated. In addition, the tax is automatically adapted 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 that appears on the income tax return. Example: income, dependents, deductible expenses, expenses eligible for tax credit, etc.

Every year, the withholding tax rate for taxpayers changes. Based on the 2021 income declared in the spring of 2022, the Direction Générale des Finances Publiques (DGFiP) updates the percentage.

This is a change from September 1. The latter may lead to changes in payroll starting in August. However, the affected taxpayers can themselves modulate the type of withholding at source if they consider it useful. Indeed, if you have updated it yourself, in this case, the calculation of the rate on your initiative remains valid until the end of the current year.

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

Therefore, it is best to verify 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 event of an increase in income this year, it may be preferable to increase your withholding tax rate so that you are not forced to pay additional taxes in the fall of 2023.

On the contrary, if your income has decreased or your tax situation has changed (birth, linking a dependent), it is necessary to lower your deduction rate so as not to advance too much taxes each month and wait for the summer of 2023 before obtaining a refund.

In any case, all you have to do is go to your personal space on the website and then to “ manage my updated tax withholding after an increase or decrease in your income Note that you can only reduce your tax rate if the difference between the planned tax and the new estimated amount is more than 10%.

Thus, nothing better than the government simulator to make sure. Also know that the administration tolerates an estimation error of the drop in income that can reach 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 decrease in your income, you must also enter the net taxable income received in year N-1. 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 fee will be calculated. Then the tax administration sends it to the organizations that pay you rent. If you are an employee, the new withholding tax rate is generally taken into account quickly by the employer and within a maximum period of 2 months.

A concrete example of withholding tax

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

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

  • Or immediately declare this change to the tax authorities. Thus, your direct debit rate will be modified within three months, that is, no later than May of year N.
  • Or do not declare anything to the Treasury. Thus, your change of status will only be known when you submit your Income Tax return for year N. That is, 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’s almost 20 months after his actual change in status.

Therefore, we recommend, in any case, that you declare each change as soon as possible because there are modifications that can be important.

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