Pension, repayment PER: how do you limit your taxation when declaring income?

That was good news in 2021. Much less in 2022. Perhaps you received exceptional income last year, such as a pension benefit, a voluntary severance payment in the public service, or even a stepping stone (entrance fee for the rental of a commercial lease)? Then keep in mind that this income, just like a purchase from a retirement savings plan (PER), must be stated in your tax return. And are therefore taxed on the scale of the income tax.

As a result, without you doing anything, your taxable income can jump and make you “jump” out of the marginal tax bracket (TMI) in certain situations, for example from a non-taxable taxpayer to a TMI of 11%, even 30. %, or even send you directly to the 41% drive. In other words, you could be very unpleasantly surprised when you sign your tax return at impots.gouv.fr.

Concrete example for a married taxpayer without children. If he received a pension of 16,000 euros in 2021, while the regular household income is usually 50,000 euros, his income tax calculated on the 2022 return will be determined at €5.664, at 2,616 euros in normal times. Or a tax difference of 3,048 euros and an invoice multiplied by 2.2!

The quotient mechanism

If you find yourself in this situation, the tax authorities allow you to “flatten” this addition thanks to the quotient mechanism. “For example, if you unlock your retirement savings plan, this extra income will be taxed in your marginal tax bracket. To avoid the negative impact of this marginal effect, the quotient makes it possible to divide the amount bought back by four, add it to the usual income and calculate the addition that will be multiplied by four,” explains the deputy director from. van Eres, company specializing in pension and employee savings, Pierre-Emmanuel Sassonia. Simply put, the tax increase is limited.

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Illustration with our example. To obtain the result of the quotient, the tax on ordinary income – of 50,000 euros – must first be calculated, ie €2.616† Then calculate the tax corresponding to that same income, increased by a quarter of the severance package of 16,000 euros, or 4,000 euros, for a total of 54,000 euros. This results in a load of €3,097† You then have to calculate the difference between the tax paid on ordinary income plus a quarter of the premium, so EUR 3,097, and that paid on ordinary income alone, EUR 2,616, and then multiply this by four. Or 481 euros (3,097 – 2,616) x 4 = €1,924† Finally, to find the tax obtained thanks to the quotient, this additional tax must be added to the usual result of 2,616 euros, ie in total 4,540 euros. Ultimately, the taxable profit thus amounts to 1,124 euros (5,664 – 4,540).

“The quotient mechanism works very well, and even better than that of the spread that has been removed since the income tax of 2020, appreciates Pierre-Emmanuel Sassonia. It makes it possible to stay within consistent tax levels in relation to the taxpayer’s situation. And in our example, the tax savings still represent 20% of the tax bill!

the income concerned

Very attractive on paper, the quotient mechanism is not open to all incomes. This mainly concerns exceptional income, “namely all income that is not intended to be received periodically”, defines the director of Eres. In its statement of the 2022 return, the Tax and Customs Administration mentions as examples “pension benefits, voluntary severance pay, so-called ‘step-by-step’ compensation”.

But the list doesn’t end there: As we’ve seen, the redemption of capital or the early release of a retirement savings plan (PER) qualifies for the mechanism. But beware, the quotient can only be used in the event of a one-off capital outflow, says the pension savings specialist. In addition, the monetization of the days placed in a time savings account also falls under the mechanism: “It should be taken into account that for an employee who has remained in the company for a large number of years, the impact is very strong and he can be marginal tax bracket change,” analyzes Benjamin Pedrini, co-founder and director of the employee savings platform, Epsor.

On the other hand, partial repayments on a retirement savings plan do not qualify, according to Pierre-Emmanuel Sassonia: “The application of the quotient system in the case of partial repayments does not seem possible because it would lose its nature exceptional income.” When asked about the subject, the Tax Authorities can not confirm this interpretation of the texts at this time. Also exclude participation premiums or other salary income that can be much higher than the usual income. professional activity will probably not be qualified as exceptional, even if this activity generates income, the amount of which varies greatly from year to year”, according to the Staatsblad van de Overheidsfinanciën (BOFiP).

Finally, other earnings affected by the quotient include “deferred” earnings, such as wage or salary notices and rent arrears received in 2021, “due to circumstances beyond your control,” according to the filing notice.

Statement of Your Eligible Income

If the calculation and the nature of the income to which the quotient relates may seem opaque, this is not the case in their declaration. To take advantage of the tax benefit, go to step 3 of the return, “Revenus and Expenses” on impots.gouv.fr. If it doesn’t, check the box on the “Exceptional or Deferred Income” line and then click “Next” at the bottom of the page.

Once your “Salaries and Salaries” have been validated, all you need to do is declare the amount of this exceptional or deferred income in box ØXX. And this, on the understanding that you do not include the same income in the other sections of your tax return, for example in box 1AJ where your wages and salaries are stated at the tax authorities. You then only need to fill in the nature of the income on the next page and then sign your declaration.

>> Our complete guide for the future retiree. How do you prepare for retirement from the start of your career? When should you leave? What are the steps to take?

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