After some delay, the French government will require employers to withhold income tax from employees’ earnings on a pay-as-you-earn basis starting 1 January 2019. This will be a significant change for both employers and employees, as income tax is currently paid directly by the employee to the tax authority in the year after the income was earned. The new system will effectively eliminate the one-year lag in collecting applicable taxes and necessitate a transition arrangement for 2018 earnings to prevent the payment of two years’ worth of taxes in 2019. Employers and pension administrators will be responsible for withholding at source the amount of income tax owed on salaries and pensions.


France, unlike many of its European neighbors, currently collects income tax from its citizens in the year following the year income is earned. The new system of withholding income tax at source will allow employees to change their filing status during the year and thereby better align withholdings to changes in family status. It should also reduce difficulties that arise under the current system when earnings are dramatically different from one year to the next. For example, the issue of paying taxes in the first year of retirement on the previous year’s normal employment earnings will be resolved. The changes in the collection of taxes will not affect the definition of taxable income.

Key details

  • Spring 2018, per the employee’s personal income tax return for 2017, a tax rate was determined by the state tax authority.
  • Fall 2018, employees will receive their calculated income tax rate; employers will receive test data on withholding tax rates via the current Déclaration Sociale Nominative (DSN) system. At this point, employees with concerns about confidentiality may opt for a neutral tax rate, and couples may choose individualized withholding rates. 
  • Fall 2018, employers will receive official withholding rates through the DSN system.
  • January 2019, employers will begin withholding the appropriate tax amounts via payroll deductions. Employers will use the DSN system to distribute withheld funds to the tax authority. 
  • Exceptional revenue, defined as income that falls outside of salary and pension income, will not be subject to withholding at source and will follow the previous system of tax payment. Exceptional income includes but is not limited to capital gains, dividends, interest, stock option gains and stock grants.
  • Withholding rates transmitted by the tax authority to employers and other third parties are confidential. Unlawful disclosure of confidential tax information can result in civil and criminal fines and penalties.

Employees with questions about their withholdings or needing to make a midyear withholding rate change can do so by contacting the tax authority online at

Transitional measure for 2018 earnings

To avoid double taxation in 2019, income tax will effectively not be due on earnings in 2018 through a special tax credit issued in Spring 2019. In addition, mechanisms will be in place to prevent individuals from gaming the system during the 2018 transition year. Examples of 2018 income that will be subject to payment of tax in the following year include:

  • Cashing out more than 10 days from a Time Savings Account.
  • End-of-service indemnities.
  • Profit sharing and bonus plan (participation and intéressement) payments, unless they are paid into a qualified company savings plan or retirement plan (PEE or PERCO).
  • Withdrawals from a qualified savings plan for reasons other than those legally permitted without penalty.
  • Lump-sum payments from a retirement plan.

Exceptional income will still be subject to tax payment in the following year, as it was prior to the introduction of withholding at source.

Next steps

Employers should anticipate a communication from the tax authority through the DSN system with test information on employees’ tax withholding rates in the following months. Changes will need to be made to payroll systems, whether in-house or outsourced. Employers should confirm all systems are properly updated.

In addition, employers should clearly communicate how the new system will work and instruct employees to contact the tax authority directly if they wish to elect a neutral withholding rate, an individualized rate in the case of couples, or request a modification of their withholding rate due to changes in family or individual circumstances. Employees will need to be made aware of how to identify their tax withholdings on payroll documentation.

Useful resources 

French Ministry of the Economy and of Finances

Déclaration Sociale Nominative