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Retirement, redemption of a PER: how to limit your taxation when declaring income

It was good news in 2021. Much less in 2022. Perhaps you received exceptional income last year, such as a retirement indemnity, a voluntary departure bonus in the public service, or even a doorstep (entrance fee for the rental of a commercial lease)? If this is the case, be aware that this income, just like a purchase from a retirement savings plan (PER), must be mentioned in your tax return. And are therefore taxed at the income tax scale.

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

Concrete example for a married taxpayer without children. If he received a retirement bonus of 16,000 euros in 2021, when the regular household income is usually 50,000 euros, his income tax calculated on the 2022 tax return is set at €5,664, against 2,616 euros in normal times. Or a tax differential of 3,048 euros and an invoice multiplied by 2.2!

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The quotient mechanism

If you are in this situation, the tax authorities allow you to “smooth” this additional tax thanks to the quotient mechanism. “If you unlock your retirement savings plan, for example, this additional income is taxed at your marginal tax bracket. To avoid the negative impact of this marginal effect, the quotient makes it possible to divide by four the amount bought back, to add it to the usual income and to calculate the additional tax bill which will be multiplied by four”, explains the associate director of Eres, company specializing in retirement and employee savings, Pierre-Emmanuel Sassonia. Simply put, the tax increase is limited.

Illustration with our example. To obtain the result of the quotient, it is first necessary to calculate the tax on ordinary income – of 50,000 euros -, i.e. €2,616. Then to calculate the tax corresponding to these same incomes, increased by a quarter of the departure bonus of 16,000 euros, or 4,000 euros, for a total of 54,000 euros. This results in a tax of €3,097. Then, you have to calculate the difference between the tax paid on the usual income raised by a quarter of the premium, therefore 3,097 euros, and that paid on ordinary income alone, 2,616 euros, then multiply it by four. Or 481 euros (3,097 – 2,616) x 4 = €1,924. Finally, to find the tax obtained thanks to the quotient, it is necessary to add this additional tax to the usual result of 2,616 euros, i.e. a total of 4,540 euros. In the end, the tax gain therefore reaches 1,124 euros (5,664 – 4,540).

“The quotient mechanism works very well, and even better than that of the spread removed since the 2020 income tax, appreciates Pierre-Emmanuel Sassonia. It makes it possible to remain 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 primarily concerns exceptional income, “namely any income that is not intended to be received on a recurring basis”, defines the director of Eres. In its notice of the 2022 declaration, the tax administration cites as examples “retirement indemnities, voluntary departure bonuses, so-called ‘step-by-step’ indemnities”.

But the list does not stop there: as we have seen, the redemption of capital or the early release of a retirement savings plan (PER) is eligible for the mechanism. But beware, the quotient can be used “only in the event of a one-time capital outflow”, specifies the retirement savings specialist. In addition, the monetization of the days placed on a time savings account also falls within the scope of the mechanism: “It must be borne in mind that for an employee who has remained in the company for a large number of years, the impact is very strong and he can change his marginal tax bracket”, analyzes Benjamin Pedrini, co-founder and managing director of the employee savings platform, Epsor.

On the other hand, partial redemptions on a retirement savings plan are not eligible, according to Pierre-Emmanuel Sassonia: “The application of the quotient system in the event of partial redemptions does not seem possible because it would make it lose its nature exceptional income.” Asked about the subject, the tax authorities are not currently able to confirm this interpretation of the texts. Exit, also, the participation bonuses or other salary income which can be much higher than the usual income. “An income earned in the normal course of professional activity is not likely to be qualified as exceptional, even if this activity produces income whose amount varies greatly from one year to another”, stipulates the Official Bulletin of Public Finances (BOFiP).

Other income affected by the quotient, finally, “deferred” income, such as reminders of salaries or wages as well as rent arrears received in 2021, “due to circumstances beyond your control”, according to the notice of the declaration .

Declaration of your eligible income

If the calculation and the nature of the income concerned by the quotient may seem opaque, this is not the case with their declaration. To take advantage of the tax benefit, on impots.gouv.fr, go to step 3 of the declaration, “Revenus et charges”. If this is not done, you must then tick the box on the line “Exceptional or deferred income” then click on “Next” at the bottom of the page.

Once your “Salaries and salaries” have been validated, all you have to do is indicate the amount of this exceptional or deferred income in box ØXX. And this, remembering not to include these same incomes in the other sections of your declaration, for example in box 1AJ where your wages and salaries known to the tax authorities appear. You will then only have to detail the nature of the income on the next page and then sign your declaration.

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