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France’s senators back plan to extend profit-sharing bonus scheme

France’s senators have adopted a bill that extends a profit bonus scheme to smaller businesses, but have pushed back on the date of its implementation.

Published: 18 October 2023 16:12 CEST

France's senators back plan to extend profit-sharing bonus scheme

Senators have largely supported a bill to extend a bonus scheme to include smaller businesses (Photo by PHILIPPE HUGUEN / AFP)

The prime de partage de la valeur – originally and more colloquially known as the ‘Macron bonus’ since its introduction in 2018 – is an opt-in system that allows employers to pay their staff a bonus that is exempt from income tax and social contributions.

Originally introduced to larger businesses, with more than 50 employees, the new bill extends the scheme to allow its introduction for businesses with between 11 and 49 employees.

Workers who earn up to three times the minimum wage are eligible for the bonus. The average sum paid out in 2023 by participating businesses was €1,681 – up 3.7 percent year on year, according to asset manager Amundi.

At the end of June, MPs in France’s lower house passed a bill that extended the scheme to include smaller businesses, and doubled the number of possible payments from one to two per year.

Senators, with a majority from the right and the centre, adopted the text by 244 votes to 18 but also approved an amendment that delays its implementation by a year.

A delegation must now find a compromise with MPs on the remaining sticking points during a joint committee (CMP) scheduled for October 30th.

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Is my US pension taxed in France?

When it comes to taxation on foreign pensions, it all depends on the tax treaty between France and the country that is paying your pension, which is why the situation is significantly different depending on where that pension is paid.

Luckily for American retirees living in France, they benefit from a generous US-France tax treaty to avoid double taxation on all pension income, including private pensions.

To better explain the situation, The Local spoke with tax expert, Jonathan Hadida from HadTax.

“The reason we call France the bees’ knees for American retirees is because US-sourced pension income is only taxed in America. That means when you take money out of your 401(K) or IRA, those are taxable at your tax bracket in the United States.

“You have to report it on the US-side and pay US taxes at your marginal rate” Hadida explained.

“On the French side, US-sourced pension income is reportable in France for rate-purposes but benefits from a deemed credit.

“This means you put it on your French tax form, and you calculate the tax and you get a deemed credit equal to that. Ultimately, you wind up paying no French taxes on your US-sourced pension thanks to Article 18 of the US-France tax treaty”.

READ MORE: Ask the expert: What Americans in France need to know about 401(k) and other pensions

You should also consider if you have a pension from another country besides the US, as different rules may apply based on that country’s bilateral tax treaty with France. Here is the situation for British, Canadian, and Australian pensions, and here is an overview of the system.

How do I report US-sourced pension income to French authorities?

Although you won’t end up paying French taxes on your US pension, you do need to tell the French taxman about it if you are a tax resident here.

The annual French income tax declaration requires you to declare all global income, including pensions.

Keep in mind that even though you are not subject to French taxes on your US pension, it does count towards your household income which can push you into a higher tax bracket, and this could affect your ability to qualify for certain means-tested grants and government aid in France.

International Financial Advisor, Bryan Dunhill with Dunhill Financial explained: “You fill it in within box 1AL or 1BL on form 20-42 on the French tax return, then you claim it in on the 8TK of the 20-47 to say it is US-based pension income, and then you will get a tax credit from the French.

“It goes in and it goes out on the French side. Being a US retiree in France is fantastic”, Dunhill said.

For both 401(K)s and IRAs, Americans in France should still keep in mind that early withdrawal (prior to the age of 59 and a half) can still lead to a 10 percent early distribution penalty (in the US). There are certain exemptions, such as first time homebuyers and higher education, but you should meet with a tax adviser to determine if you qualify.

READ MORE: EXPLAINED: The rules on tax residency in France

What about social charges?

In addition to taxes (impôts), France also requires people to pay social charges (prélèvements sociaux) on income. However, only specific types of income can be considered for social charges, such as the CSM charge (PUMa) for healthcare.

The general rule is that pensioners and their spouses do not have to pay the CSM charge, but France specifically exempts people who have a pension from France, the EU, the EEA and the UK (people with S1 forms).

There is some debate over whether common types of American private pensions such as a 401(K) or IRA are treated as a pension (and therefore exempt from CSM) or as investment income (which can attract CSM charges).

Hadida told The Local: “Under the principle of equality amongst taxpayers, URSAAF has treated most US pensions/IRA distributions/401(k) distributions akin to a French/Swiss/European pension and have therefore exempted Americans with pension income.”

“I have called URSSAF, and I was told by the representative that they should be paying for PUMa. But in practice, I have not seen many American pensioners charged for it.

READ MORE: Cotisations: Why you might get an unexpected French health bill

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