The new French tax withholding regime —"prélèvement à la source"— may have a nefarious effect on Americans in France with U.S. Source Income.
One AARO member was unpleasantly surprised to find that the French tax authority was applying the withholding on their gross tax as calculated on gross income before application of the foreign tax credit.
In previous years, the tax credit granted to her on her U.S. source income cut the final tax to less than half of the French tax calculated on the gross income before credits because her French spouse’s French source income was in the lowest French tax bracket. She thus assumed that the French would apply the withholding on the net calculated income tax and not on the gross calculated income tax.
The French tax office has reassured her that she will receive a refund, but not before the end of 2020. She had not budgeted for this transitional result.
Those with U.S. pensions and other taxable U.S. source income who file a joint return with a spouse or civil union (PACS) partner may be exposed to this type of withholding treatment in 2019 and thereafter. We can also see other possibilities (e.g. retirees on U.S. pensions) where a person without French source income who files French income tax returns could undergo the same treatment despite the fact that they never have any tax to pay once the foreign tax credit is applied.
The immediate course of action is to consult your French online tax account to see if there is a fix. We also strongly suggest that you go to your French tax office in person with your “avis d’imposition" of 2017 (and even 2016 and earlier) to make your case.
AARO is trying to understand the different problems and situations Americans might face in light of this new tax regime. If you encounter problems, please inform us. Additionally, please pass along any contacts you have who are knowledgeable about these French tax issues: AARO's tax committee is seeking to urgently find solutions to the problems linked to prélèvement à la source.
This article was contributed by Tim Ramier.