How French Income Tax Is Calculated on a Payslip: The Prélèvement à la Source, End to End

French income tax works differently from most payroll deductions: the employer withholds the tax every month but never calculates how much income tax the employee actually owes for the year. Since January 2019, income tax (impôt sur le revenu) has been collected at source through the prélèvement à la source (PAS). Each month the employer withholds tax from salary and remits the money to the state, acting only as a collection agent (tiers collecteur), not as the tax authority. The tax administration sets the rate, and the tax administration settles the final bill the following year. The employer's role is narrow, and three things decide whether the withholding is correct: the amount the tax applies to, the rate applied to that amount, and the pay that is exempt before either step. I will take the three in order.

The amount the tax applies to: the net imposable

The PAS is not applied to gross salary and not applied to net pay. The tax applies to a third figure, the net imposable (net taxable income).

The net imposable begins with gross salary and then makes a set of adjustments. Gross salary is reduced by the deductible portion of the CSG (6.80% calculated on 98.25% of gross), by the employee's pension contributions (both the basic vieillesse and the AGIRC-ARRCO complementary contributions), and by employee health and welfare contributions within their exemption limits. Two amounts are then added back, and both are easy to miss: the non-deductible portion of the CSG and CRDS, which stays inside taxable income, and any employer contribution to health or welfare cover above the exemption threshold. Finally, the exempt portion of overtime pay, up to €7,500 net per year, is removed.

Gross and net imposable are different numbers on almost every payslip, and the gap between the two varies from one employee to the next depending on their contributions. Applying the tax to gross over-taxes the employee; applying the tax to net pay under-taxes them. In both cases the monthly payslip looks correct, and the difference is only caught on the annual tax return at the end of the year.

Where the monthly rate comes from

France does not ask the employer to calculate the employee's tax rate. Three kinds of rate exist. The personalized rate (taux personnalisé) is calculated by the tax administration from the household's overall situation and sent to the employer each month in a file called the compte-rendu métier (CRM). The individualized rate (taux individualisé) is the same arrangement for couples who want each partner taxed on their own income rather than on a single household rate. The neutral rate (taux neutre) is the default: when the employer has received no personalized rate for an employee, the employer applies a rate from a published grid based only on the net imposable amount.

The grid, for metropolitan France in 2026, runs in steps: 0% up to €1,635 of monthly net imposable, then rising through 0.5%, 1.3%, 2.1% and onward, reaching 20% at €7,037, and 30% and higher for the top bands, up to 43% above €55,558 a month. The overseas departments use their own lower grids.

Two features of the rate matter. The rate changes during the year: a marriage, a divorce, a birth, or an income change prompts the administration to send a new personalized rate, effective from the month the tax office issues it, with no back-dating. And the default is not optional: when no personalized rate is on file, which is common for new hires, the neutral grid must be used, read off the net imposable rather than off gross.

The annual scale that sets the rate

The personalized rate comes from the progressive income-tax scale (the barème), though the employer never applies the barème directly. The scale has five bands, running from 0% through 11%, 30%, 41% and 45% on the highest income, applied to income per part of the household. The thresholds between the bands are re-indexed each year in the finance law, and in a year where the budget is delayed or frozen the prior thresholds stay in force. The tax administration combines the scale, the household's family parts, and any reliefs into one percentage, and sends the employer only that percentage. In other words, the tax authority does the complicated calculation, and the employer simply applies the percentage the tax authority provides.

Two reliefs that people often expect to see on the payslip are not applied there at all. The standard 10% deduction for professional expenses and the quotient familial (which divides household income into parts to soften the progressive rates) are never applied in the monthly withholding. The tax authority applies both once a year, in the annual calculation on the whole household, which is why the tax withheld each month is only an approximation, corrected the following year rather than final.

Which pay is taxed and which is exempt

Employment income is broadly taxable: base salary, overtime and additional-hours pay, most bonuses and premiums, and benefits in kind such as a company car or employer-provided housing. Several categories are removed before the taxable base is set, and each carries a precise limit.

Overtime and additional hours are income-tax exempt up to €7,500 net per year, though both remain subject to CSG and CRDS. Apprentices are exempt from income tax on apprenticeship pay up to the annual SMIC. Interns on a gratification are exempt from income tax up to the annual SMIC. Genuine professional expense reimbursements (frais professionnels) within URSSAF limits are not taxable income. Certain sector allowances are also excluded. None of these exemptions is discretionary; each is a defined exemption with a ceiling, and any amount above the ceiling returns to the taxable base.

The three inputs that change through the year

Little in the French calculation is conceptually hard, but three parts must be exact, and all three change over time. The net imposable has to be recalculated on every payslip, using that employee's own CSG, pension and welfare amounts, so no two employees share the same figure. The rate is not fixed: the tax office issues a new rate whenever a household's circumstances change, effective from the month of issue. And the government revises the underlying numbers each year through the finance law: the income brackets behind the personal rate are re-indexed for January, and the default (neutral) grid the employer uses when no personal rate has been provided is reissued to take effect from 1 May. Each exemption also has a ceiling, above which the pay becomes taxable.

For an employer, the calculation reduces to two numbers per employee per month: the net imposable the tax applies to, and the rate the tax office last sent. Both can change from one month to the next. Because the monthly withholding is only an advance that the state settles the following year, a month that uses the wrong base or an out-of-date rate still produces a normal-looking payslip, and the error is only identified when the annual tax return is reconciled at the end of the year.