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17 comments A guide to Belgian taxes with up-to-date information on Belgian tax rates, VAT, exemptions and taxes in Belgium for foreigners, plus other payable taxes in Belgium.If you are a foreigner living in Belgium or working in Belgium, you will be liable to pay Belgian taxes and file a tax return in Belgium, although some exceptions exist.
Additionally, property tax, sales tax and gift and inheritance tax may be relevant .Additionally, property tax, sales tax and gift and inheritance tax may be relevant.
In most circumstances there is no Belgian tax on capital gains or wealth for individuals, thus pushing Belgium's tax burden firmly onto the employee.Taxation in Belgium is one of the highest in Europe.Belgian tax rates amount to an effective rate of more than 50% for the highest earners (including social security), compared to an average 45% in Europe.Belgian income tax and company tax are collected at state level, but the municipal authorities also collect property tax and municipal tax.
However, there is a special tax status for some expats whereby resident foreigners are treated as non-residents for tax purposes and enjoy generous tax allowances.Double taxation treaties exist to help relieve a Belgian tax resident from having to pay additional income tax to another country.The Belgian government also offers a range of tax deductions which can help reduce your Belgian tax burden.The high level of Belgium’s tax rates has long been in contention with Belgium residents.
The Belgian government, however, is working to improve Belgium’s tax situation with a raft of tax reforms introduced in 2015 to be implemented in the coming years.
In 2017, the government introduced a new tax return form that included 885 field boxes; although reportedly most people can do it in five minutes if filing online because around 320 boxes will be automatically filled.Doing your taxes in Belgium can be a complex matter.The information given here provides a general overview, and you should always get professional advice from a Belgian financial expert regarding your individual tax situation in Belgium.Who has to pay Belgian taxes? How much you are taxed in Belgium depends on whether you are a resident or non-resident of the country.For Belgian taxation purposes, you are classed as a resident of Belgium if your family home is in Belgium or it is where you work.
If you are living in Belgium for at least six months (183 days) of the year and registered with your local commune, then you are classed as a resident and have to pay Belgium income tax on your worldwide income.Your taxable income is the income left after deductions for social security contributions, personal allowance, professional costs, etc.If you live in Belgium for fewer than six months (183 days), you will only be taxed on the income earned in Belgium – including rents and capital gains – once you qualify as non-resident status under the Belgian tax system.Belgian tax rates Residents of Belgium pay personal income tax on their total earning from all worldwide sources on a sliding scale.Belgian tax rates for 2017Belgian income tax bands 50% Under the Belgian tax system, residents also pay municipal and regional taxes that typically range up to 9%.
For non-residents, an average 7% municipal tax is taken into account, irrespective of whether the municipal taxes are levied in the commune.Belgian income tax is paid on the taxable base, which is determined from salary less compulsory social security contributions (paid either in Belgium or abroad).Social security tax in Belgium is paid on top of earned income.If you’re employed your employer pays part and you pay another, smaller part (which worked out to be 35% and 13.Self-employed workers pay the amount themselves but it is capped at €15,905 per year.Read more in our guide to social security in Belgium and Belgian taxes for self-employed workers.Professional expenses can also be deducted either directly with supporting documentation or more usually on a lump sum basis depending on the salary level.For income tax year 2017, the maximum lump-sum deduction, or Belgian tax refund, for employees is €4,320, or €2,440 for directors.Belgian tax calculator You will be taxed on your earned income minus your mandatory social security contributions, personal allowances, dependent spouse allowance and professional costs (as an actual amount or fixed standard cost).
As well as income earned through employment or self-employment, other taxable income includes income from real estate and investments.We provide a detailed guide on how to calculate your Belgian taxes.You can also work out how much taxes in Belgium you will have to pay using this Non-resident tax status Expatriates who satisfy specific conditions can apply for a special taxation regime and pay Belgian tax only on income related to professional duties carried out in Belgium.Read more how to claim non-resident tax status in Belgium.The conditions require that employment must be by an international group or in a scientific research centre, and must be temporary.
A foreign executive assigned temporarily to Belgium may qualify, for example, but the conditions are quite strict.Also, the expatriate’s centre of personal and economic interest must not be Belgium.In determining the latter, the authorities take the following into account: the ownership of real estate, personal property or securities abroad; a life assurance contract written abroad; the inclusion of a diplomatic clause in the Belgian rental agreement for accommodation; continued affiliation to a group pension scheme abroad; renewal of credit cards issued by banks abroad; continued affiliation to a social security scheme abroad; continuing to act as an officer of a foreign company.If you qualify for the above, you will be classed as a 'non-resident' taxpayer and can claim specific allowances and deductions.As a non-resident, you will only be taxed on Belgian-earned income – instead of worldwide income – although Belgian tax rates are the same for everyone.
Certain other expenses are also tax-free – such as the cost of living (€2,500 limit) and housing, tax equalization and school costs (no cap) – of up to €11,250 for managers, or up to €29,750 for scientists.To obtain expat tax status you and your employer must apply to the Belgian tax authority within six months of the beginning of the month after the month of arrival in Belgium.However, under the recent tax reforms, foreign executives with expat tax status who live with their family in Belgium will no longer benefit from several personal tax free allowances, unless they earn at least 75% of their total taxable professional income during the Belgian tax year.It may therefore be advisable in some cases to limit the annual foreign business travel to a maximum of 25%.Dual taxation agreements Belgium has signed more than 90 conventions with other countries to avoid double taxation (ie.paying tax in your home country and in Belgium).See this Federal Public Service Finance list to see the up-to-date list of countries.Belgian tax reforms: Who do they benefit? Since the sixth state reforms announced in 2015, the government's aim will be to shift labour taxes to wealth and consumption, although there are no plans to change Belgium's effective tax rate (including social security) of more than 50 % for the highest earners, according to Taxpatria.Under the reforms, the Belgian government announced a number of changes that will affect Belgian residents, including: increased tax rate on investment income 21% VAT on electricity a Cayman tax.
As part of the Tax Shift Law 2016 several measures were introduced to increase professional net income, e.the employer social security contributions will decrease from 33% to 25% over the following few years.On the employee's side, the tax reforms aim to increase net salaries through a combination of three measures: lump-sum business expenses, Belgian tax rates and the tax-exempt amount.The basic exemption, or Belgian tax refund, for 2018 is €7,430 regardless of marital status, with further exemptions for dependent children.
Belgian tax year and deadlines The Belgian tax year for personal income runs from 1 January to 31 December.Everyone resident in Belgium and non-residents taxed on Belgian-sourced income have to file an annual Belgian tax return.You will typically receive a tax return around May–June ( d claration/ aangifte) relating to the previous year's income.This must normally be returned by the end of June, although you will find the exact date on your tax return.
If you use the ‘Tax-on-Web’ online filing system, you are traditionally allowed some extra time.
Non-residents file their return at the end of September/beginning of October.If you don’t submit your return by the deadline you can face a fine, and the tax authorities may estimate how much tax you need to pay.You can track the progress of your tax return through FPS Finance application Minfin.Paying taxes in Belgium imp t des personnes physiques or personenbelasting) from your salary on a monthly basis, which is known as the Pr compte Professionnel/Bedrijfsvoorheffing.Similarly, self-employed workers or paid company directors have to pay monthly tax in advance via a collecting agency or bank.
You can pay your Belgian taxes via post to your closest Belgian tax authority (the address will be on the top of your tax return) or online using a Belgian eID through the Belgian government’s tax portal Tax-on-web.If you are non-resident with Belgian-earned income, you have to inform your competent tax collectors’ office, who will send you a tax return every year.The deadline for paying online is usually later than the postal deadline.Filing your Belgian tax return When filing your tax return in Belgium, residents in Belgium are typically eligible to claim certain tax allowances, explained below.
You can also read more in our guides to Belgian tax calculations, expenses you can deduct and filing your Belgian tax return.
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Spouses and registered partners If you are married or in a registered civil partnership you need to file a joint tax return, but your incomes will be taxed separately.If only one of you is earning, 30% of the income can be attributed to the non-earning partner and taxed at a lower Belgian tax rate (up to €10,720 in 2018).This is known as the dependent spouse allowance 31 Dec 2017 - The final payment is due on 15 September after the actual The payment should be made on the French tax authorithy website through a his return via paper (In fact even if the official deadline is March 1st, Please note that an exceptional contribution of 3 % or 4% on high Less standard deductions:..This is known as the dependent spouse allowance.
If the income of the second earner is less than the maximum amount, then the additional income from the primary earner is attributed to the secondary earner up to the maximum amount.
Personal allowances and deductions for Belgian taxes The basic personal allowance in 2018 is €7,430; if you have one child it is €1,580, for two children it is €4,060, for three children it is €9,110 and so on Our experienced essay writers are ready to write quality custom UK essays for you any time you need. Essay writing without Save time; Improve your results; Find more extensive sources; Get help with research Urgency, 2:2 Standard, 2:1 Standard, First Class Standard Get a high-quality paper, completed by a team: .Personal allowances and deductions for Belgian taxes The basic personal allowance in 2018 is €7,430; if you have one child it is €1,580, for two children it is €4,060, for three children it is €9,110 and so on.As a rule, non-residents who don’t own a home in Belgium nor earn at least 75% of their income in Belgium can’t claim personal allowances.Tax credits in Belgium include: Charitable donations Pension plan contributions Taxe sur la Valeur Ajout e (TVA) or Belasting over de Toegevoegde Waarde (BTW) and is payable on most goods and services.The standard rate is 21%, while there are lower rates for certain categories of goods and services.A rate of 12% is applied to food served in restaurants and social housing, while a rate of 6% applies to most basic goods, such as food, water supply, books and medicine.
Daily and weekly publications and recycled goods are typically rated at zero percent.Paying taxes in Belgium Pr compte immobilier/Onroerende voorheffing (PI/OV) This is an annual tax on property owners (not tenants), based on ownership as at 1 January of each year.The amount is calculated on the presumed annual rental value ( revenue cadastral/kadastraal inkomen) attributed to the property by local authorities.The tax paid varies according to the commune and the region.In the Flemish region it is generally 2.
5% of the annual deemed rental income, while in Brussels region it is 2.25% and in the Walloon region it is approximately 1.Municipal taxes Municipal taxes for TV, rubbish, water, etc.are levied by the regions/provinces and municipalities ( communes/gemeenten) at rates of up to 9%, calculated on the amount of income tax you pay.
Non-residents don’t pay municipal tax but pay instead a federal tax at a flat rate of 7% on income tax.Inheritance, capital gains and gift tax Inheritance tax is payable on the total value of the estate of a person settled in Belgium, or any property owned in Belgium if they are not settled there.Those working for the EU, NATO or similar organizations are exempt.Capital gains tax is payable on the difference between the original purchase price and the final sale price on property and land sales.
Gift tax is a tax on financial gifts to relatives.Withholding tax Withholding tax on, in principle, movable income (such as dividend income and interest) increased from 27% to 30% in 2017.Belgian corporate taxes The basic rate of corporation tax in Belgium is 33%, with an additional surcharge tax of 3%.In some cases, however, companies are eligible for reduced Belgian corporate tax rates, for example, if they earn below a certain threshold.More is explained in our guide to corporate, freelance and self-employment taxes in Belgium Belgian tax authority The Ministry of Finance (Service Public F d ral Finances) provides information on all aspects of taxation, most of which is available in Dutch and French, or you can call +32 (0)2 572 5757 (8:00 to 17:00).
You can track the progress of your tax return through FPS Finance application Minfin.Portail de la Wallonie has information in French on regional taxes in Wallonia.has information in Dutch on regional taxes in Flanders.Find an accounting expert ( All information contained in this document is summarized by FIDAL has a cooperative agreement with KPMG), based on the French General Tax Code (Code General des Imp ts-CGI), and supporting information published by the Ministry of the Economy, Finance and Industry.
Tax returns and compliance When are tax returns due? That is, what is the tax return due date? By law, the due date is 1 March but in recent years the tax administration has extended the date to mid-May (May 18 for the declaration of the 2015 income).Extended deadlines exist for internet filing.What are the compliance requirements for tax returns in France? In France the income tax return is generally a family return with spouses and dependent children reporting their income jointly.
Married couples are required to file jointly - exceptions are allowed only under very limited circumstances.
Single, divorced, and widowed taxpayers are also required to file a family return including their dependents.In certain cases, major children can be claimed as dependents: if they are under 21 years of age, or are less than 25 years of age and are students.France uses an income-splitting system to determine the applicable tax rate – therefore, the larger the family size, the lower the income tax.Income taxes for residents are payable in the year after the income is earned.The tax liability is payable in either three installments or 12 monthly payments, at the taxpayer’s option.
Unless the taxpayer opts for monthly payments, he/she must make payments on 15 February and 15 May, each equaling one-third of the amount of the previous year’s total income tax.The final payment is due on 15 September after the actual assessment is received.The taxpayer may opt before October to make 10 equal monthly payments by bank transfer, beginning in January of the following year, totaling the full amount of the previous year’s income tax liability, and any additional tax due is payable when assessed ( so the two last installments are paid taking into consideration the 10 monthly installments already paid).The French tax authorities will automatically refund (without action required from tax payer) any excess payment if the 2 or 10 installments are higher than the final income tax assessed.Income tax for the initial year of residence in France is usually not due until the 15 September of the year following arrival, since no February or May estimated payments are required.
The payment should be made on the French tax authorithy website through a SEPA bank account for the payment over Euros 2 000.Residents The taxpayer and spouse, if applicable, are required to file a joint French tax declaration reporting total taxable income received by the family unit (spouses plus dependent children) in the previous calendar year with their local tax office by the deadline in the year following the tax year.No payment of tax is due with the declaration.
Non-residents Non-residents are subject to income tax in France on their French-source income only.Employer income tax withholding is required when a non-resident receives compensation that is taxable in France, and a monthly withholding tax return must be filed by the employer.This income is subject to progressive income tax withholding rates of 0 percent, 12 percent, and 20 percent depending on the amount of total taxable compensation.When compensation reaches the 20 percent bracket, an annual individual non-resident income tax return is also required even though tax has been withheld at source.Similarly, if a non-resident receives taxable French-source income other than compensation, then an annual non-resident return must be filed.
The taxpayer and spouse, if applicable, are required to file a joint French non-resident tax declaration by May 18 for 2015 income and if the taxpayer filed his return via paper (In fact even if the official deadline is March 1st, extension is usually granted by French tax administration until mid-May).Extension of the deadline is possible when filing online.Tax Rates What are the current income tax rates for residents and non-residents in France? In France, rates are voted at the end of the year for the year gone by.In France, income taxes are calculated using a progressive rate scale.The finance law for 2016 confirmed the below rates and brackets applicable to 2016income.
Residents Taxable income bracket From EUR * These are considered income taxes on investment income, but social charges when assessed on salaries ** Please note that taxpayers can elect for a withholding at source for their dividends – the tax rate applicable for 2016 income should be 21% - it 24% for interest.*** Please note that taxation at progressive rate is balanced with a system of specific abatement depending on the period the securities are hold by taxpayer (50% between 2 and 8 years holding period and 65% beyond 8 years) RESIDENCE RULES For the purposes of taxation, how is an individual defined as a resident of France? Domicile does not refer to the Anglo-Saxon term, but is a term used in French tax law.It is roughly equivalent to the term residence in most jurisdictions.The criteria for determining domicile are very broad.An individual will be considered domiciled in France for tax purposes in any one of the following circumstances, subject to tax treaty provisions: The individual has his/her permanent home in France.
A home is defined as being where the individual and his/her family ordinarily reside.A taxpayer may still be considered to have his/her home in France, even if he/she is not physically present in France for all or most of the year.The individual has his/her main place of abode in France.If the taxpayer spends more time in France than in another country, then he/she will be considered a resident of France, regardless of whether he/she resides in a permanent home, hotel, or other dwelling.When an individual spends more than 183 days in a year in France, residence is presumed.
The individual performs professional activities in France (whether salaried or not) unless his/her activity in France is of an auxiliary or secondary nature.
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The principal activity is that on which the individual spends most of his/her time or which generates the largest part of his/her income.The individual has his/her center of economic interests in France.This occurs when most of his/her assets are situated in France, are effectively managed in France, or the majority of his/her investment income arises from France Belgian tax guide: A guide to taxes in Belgium, including Belgian tax rates, The high level of Belgium's tax rates has long been in contention with Social security tax in Belgium is paid on top of earned income. Capital gains tax is payable on the difference between the original purchase price and the final sale price on .This occurs when most of his/her assets are situated in France, are effectively managed in France, or the majority of his/her investment income arises from France.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
What if the assignee enters the country before their assignment begins? An individual will become a resident of France as of the moment he/she meets any of the resident criteria outlined above, subject to tax treaty provisions.If an individual works in France prior to formally beginning his/her assignment, these workdays will generate income taxable in France, although this income may be exempted under a tax treaty 12 Dec 2017 - Get forms and other information faster and easier at: 2017 standard deduction is in- paper check, you may be able to have your re- group-term life insurance and additional taxes on health savings Many VITA sites offer free electronic filing and mentary school, junior or senior high school,..If an individual works in France prior to formally beginning his/her assignment, these workdays will generate income taxable in France, although this income may be exempted under a tax treaty.TERMINATION OF RESIDENCE Are there any tax compliance requirements when leaving France? Upon termination of French residence, the taxpayer should inform both his/her tax authorithy center (Centre des Service Imp ts) and tax collector (Tr sorerie des Particuliers) that he/she has left the country, and that all mail should be forwarded to his/her new address.Furthermore, he/she should indicate the name and address of a fiscal representative in France.
The final year tax declaration should be filed by the normal filing deadline in the subsequent calendar year, and it should include all income earned during the period of residence in France, as well as French-sourced income earned after departure from France during the same tax year.Income tax related to the final year should be paid within the same time frame as for a resident of France.French tax residents who transfer their tax residences abroad after having been French tax residents for at least six years at the time of the transfer, will be subject to a new exit tax.The taxable basis will be the unrealized capital gain as valued on the day preceding the date of departure.
Individuals will be liable for the tax if they hold, alone or with family members, directly or indirectly, at least 1 percent of financial rights in a company subject to corporate tax or similar taxation (implying that the exit tax will be due even if the company is not French), or if the value of the shareholding exceeds €1.
What if the assignee comes back for a trip after residency has terminated? If an individual works in France after ending his/her assignment, these workdays will generate income taxable in France, although this income may be exempted under the personal services clause of a tax treaty.Communication between immigration and taxation authorities Do the immigration authorities in France provide information to the local taxation authorities regarding when a person enters or leaves France? Immigration officials do occasionally ask for information from the tax authorities, especially when renewing visas.Filing requirements Will an assignee have a filing requirement in the host country after they leave the country and repatriate? The final year tax declaration should be filed by the normal filing deadline in the subsequent calendar year, and it should include all income earned during the period of residence in France, as well as French-sourced income earned after departure from France during the same tax year.Income tax related to the final year should be paid within the same time frame as for a resident of France.
ECONOMIC EMPLOYER APPROACH Do the taxation authorities in France adopt the economic employer approach 1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in France considering the adoption of this interpretation of economic employer in the future? Historically, no, the position of the French tax administration has been to look at the legal employer.However, there is a trend towards taking the economic employer approach where there is a recharge of the remuneration costs to the French entity.De minimus number of days Are there a de minimus number of days 2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days? Not applicable.TYPES OF TAXABLE COMPENSATION What categories are subject to income tax in general situations? Residents of France are subject to tax on their worldwide income, for example: Earned income including salary, wages, bonuses, allowances, etc.Under certain conditions, assignment-related allowances may be exempt in France.
Fringe benefits are taxable as employment income, generally at their actual value.Taxable fringe benefits include such items as a car, meals, housing, and the payment of utilities bills by the employer.Special valuation methods exist for housing and private use of company cars.Non-commercial activities (such as activities performed by individuals in the legal and medical profession).Dividends, although at reduced amounts, interest are included on the tax returns and taxed according to the graduated rate scale or flat rate taxation at the option of the taxpayer.
Net rental income is taxed at normal progressive rates.Rental losses up to EUR10,700 excluding mortgage interestexpenses may be deducted from other income.Capital gains on securities are taxable irrespective of the amounts of gross proceeds.ains are taxed at the marginal rate of the taxpayer for personal income tax (plus 17.If net losses result, they may be carried forward for 10 years for use against subsequent capital gains of a similar nature.Capital gains on real estate and personal property are taxed differently.A rebate is also applicable after two years of detention of the shares.TAX-EXEMPT INCOME Are there any areas of income that are exempt from taxation in France? If so, please provide a general definition of these areas.The following categories of income are exempt from income tax: termination or severance payments within certain limits damages for breach of employment contract, under certain conditions sick pay resulting from professional injury or sickness under certain circumstances the employer's social security, unemployment, and retirement contributions expatriate allowances: Most moving and temporary living expense reimbursements are generally not taxable and lump sum relocation allowances for unsubstantiated expenses may be tax free if it can be demonstrated that the amount was actually spent in connection with items that would normally be reimbursed free of tax income from certain bank accounts: Livret A, Livret pour le D veloppement Durable expatriate allowances when the conditions for exemption are met under the special impatriate regime (see below).
Double taxation treaties may provide exemption from French tax on certain items taxable elsewhere; for example, compensation for services rendered and paid in a treaty country, or rental income on property situated in a treaty country.EXPATRIATE CONCESSIONS Are there any concessions made for expatriates in France?The economic modernization law contained noticeable changes to the specific tax regime applicable to inbound assignees (impatriates), which was initially introduced in 2004 with the stated aim of making France more attractive to foreign talents.The impatriate regime covers employees sent to France by a non-French employer to perform professional duties for a limited period of time, provided that the impatriate takes up French tax residence and has not been a French tax resident during the five calendar year period preceding the start of the assignment.People directly recruited abroad by a French employer and self-employed individuals are brought within the scope of the regime if arrived before December 21, 2012.Exemption from income tax is provided to the end of the fifth year following arrival for the portion of the salary compensating for the transfer to France (impatriation premium) and the the portion paid specifically for duties performed outside of France but for the benefit of the French host company.
For assignement beginning after July 6th, 2016, this exemption is now provided to end on the eighth year following arrival.There is a global exemption limit: the application of regime must not lead to the exemption of more than 50 percent of the impatriate's total remuneration.However; if this option proves to be more favorable, the employee may chose to have the total impatriation premium fully exempt from tax but with a limit on the salary paid for duties performed abroad of 20 percent of the net taxable salary.For employees hired directly from abroad by a French entity, and for self-employed individuals, the income tax exemption will generally be a flat 30 percent of the remuneration.Under the impatriate regime, passive investment income (such as interest and dividends), capital gains from the sale of securities, copyrights and royalties received from a country with which France has entered into a double tax agreement including a mutual assistance clause, are only liable to income tax on half of the amount.
5% will remain due on 100 percent of the amount.Impatriates are also exempt from French wealth tax on their assets held outside France for the first five years, whatever the reason for their arrival in France, provided they have been outside of France for over 5 calendar years.Headquarters entities: Employees of headquarters entities that have obtained a special ruling may exclude from their French taxable income employer reimbursements for additional housing over home country costs, school tuition, home leave and tax protection or equalization.In this case the excluded amounts are subject to corporate French tax at a negotiated rate.
Nonetheless, a major benefit is the elimination of the tax-on-tax snowball effect at the individual level.If none of the above exemptions apply (impatriates or Headquarters) individuals expatriates who were not resident in the fiscal year immediately before the year of arrival and whose assignment is not expected to last more than six years may exclude from taxable compensation the following payments: pre-assignment trips (travel costs for taxpayer and spouse) agency costs in finding accommodation storage costs in home country travel and subsistence for the employee and his/her family during the moving period removal costs and travel costs at the beginning and end of assignment temporary car hire during a maximum of two months at the beginning and end of assignment temporary accommodation at the beginning and end of assignment (maximum three months) language lessons for employee and family and for dependent children at school home leave trips once a year for employee and his/her family cost of one trip to the host country for dependent children at school abroad school fees for dependent children in fee-paying education and in home country language emergency trip to home country for the employee and his/her family garden maintenance costs in home country other costs such as customs, driving license, conversion of vehicles, etc.these exemptions may be taken into consideration whether or not the special impatriate regime applies.Is salary earned from working abroad taxed in France? If so, how? Taxable salary of residents cannot be reduced by allocating income to foreign business trips.However, there are a number of exclusions: 1) under the impatriate regime (please see above) 2) residents who are citizens of tax treaty countries (and countries with reciprocity agreements), who travel outside France on business may benefit from a tax-free expatriation indemnity paid by their employer for work performed outside France.
To qualify, this premium should be paid in addition to the usual salary and should be provided for in writing prior to claiming the exemption.It should be calculated by reference to the number of business trips actually made (that is time spent working abroad).The amount should be reasonable in relation to normal salary and in any case may not exceed 40 percent of daily taxable remuneration per day spent abroad.While exempt from income tax, such indemnities are taken into account for exemption with progression and subject to French social charges, if applicable.
TAXATION OF INVESTMENT INCOME AND CAPITAL GAINS Are investment income and capital gains taxed in France? If so, how? Are investment income and capital gains taxed in France? If so, how? In general, investment income, including dividends and interest, is taxed at ordinary progressive tax rates, subject to tax treaty provisions.
Capital gains from the sale of securities are taxed applying the French profgressive rates and brackets .Capital gains, and also other investment income, including rental income, are subject to additional surtaxes of 15.The surtaxes are assessed via the same tax bill as the French personal income tax.The gain generated from the sale of a principal residence is free of tax.
For other properties, resident French taxpayers are taxed at 19 percent plus 15.5 percent surtaxes for 2015 gain on the taxable capital gain from real property and the income tax is withheld at the time of the sale.Some rabate can be applied depending of the number of years of detention of the property.Non-resident taxpayers leaving outside of the EU are taxed at 33.33 percent, although special conditions and exemptions apply to citizens of EU member countries, Iceland and Norway, who have resided in France for at least two years prior to the sale.
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These special conditions and exemptions also apply to citizens from other countries that have a double taxation treaty with France that contains a non-discrimination clause.tax treaty exemptions: Unique and favorable provisions exist in the French-U.-sourced interest, dividends, and capital gains from the sale of securities realized by U Taxes 101: a comprehensive guide to the basics of filing your taxes for the first Top 5 Common FAFSA Mistakes Standard deduction – A set amount of money that the federal government But if your scholarship money is paid in exchange for teaching, research or “If you file, you'll likely get that money back,” he says..-sourced interest, dividends, and capital gains from the sale of securities realized by U.
citizens residing in France are exempt from French income tax and surtaxes.Dividends, interest, and rental income Dividends received since January 1st, 2013, are subject to the following taxes and levies: The dividends are taxed according to the graduated ordinary income tax rates after applying a 40% reduction to the gross dividend Best website to write a college term paper taxation Premium Editing 28 pages / 7700 words US Letter Size.Dividends, interest, and rental income Dividends received since January 1st, 2013, are subject to the following taxes and levies: The dividends are taxed according to the graduated ordinary income tax rates after applying a 40% reduction to the gross dividend.The dividends are also subject to the social surtaxes of 15,5% Best website to write a college term paper taxation Premium Editing 28 pages / 7700 words US Letter Size.
The dividends are also subject to the social surtaxes of 15,5%.
The 40% deduction does not apply to the basis for the determination of the social surtaxes.In addition, prior to being subjected to income tax at the graduated income tax rates, these dividends are subject to an obligatory withholding at a 21% rate plus social contributions at a rate of 15 freeandroidgaming.com/essay/get-a-college-social-sciences-essay-single-spaced-standard-24-hours-100-plagiarism-free.In addition, prior to being subjected to income tax at the graduated income tax rates, these dividends are subject to an obligatory withholding at a 21% rate plus social contributions at a rate of 15.This withholding is considered to be a pre-payment of income tax to be deducted from the final tax liability, and refundable if applicable.However, this last provision above does not apply to households whose previous year reference income is less than EUR 50,000 (single taxpayers, divorced or widowed) or EUR 75,000 (taxpayers filing jointly).
Interests received since January 1st, 2013, are subject to the following taxes and levies: The interests are taxed according to the graduated ordinary income tax rates.In addition, prior to being subjected to income tax at the graduated income tax rates, these interests are subject to an obligatory withholding at a 24% rate plus social contributions at a rate of 15.This withholding is considered to be a pre-payment of income tax to be deducted from the final tax liability, and refundable if applicable.The interests are also subject to the social surtaxes of 15,5%.
However, this last provision above does not apply to householdswhose previous year reference income is less than EUR 25,000 (single taxpayers, divorced or widowed) or EUR 50,000 (taxpayers filing jointly).Rental income is taxable at the normal progressive rates, though different rules apply depending on whether the property is rented furnished or unfurnished.For unfurnished rentals, a default regime exists to allow a deduction of 30 percent of gross receipts.This 30% deduction is only applicable if the gross annual rental income is lesser than EUR 15,000.Alternatively, it is possible to deduct actual expenses including interest, local property taxes, and other related expenses.
Generally, rental losses from unfurnished properties of up to EUR10,700, excluding interest expenses, may be deducted from other income in the current year.Rental losses from unfurnished properties in excess of this amount and that portion of rental losses created by interest expenses may be carried forward and applied against rental income of the following 10 years.Income from furnished rentals is taxed as business income and different rules apply.Gains from stock option exercises Qualified plans - Period between 27/04/2000 and 27/09/2012 For qualified plans, taxation takes place at the sale of the shares.A social security tax exemption is applied to the acquisition gain if a holding period from option grant to the sale of the shares of 4 years is met (options granted as of 27 April 2000).
If, in addition to the above period an additional holding period of two years from option exercise to the sale of the shares is met, the more favorable capital gains' tax rate applies on the portion of the acquisition gain not exceeding EUR152,500.- Period starting from 28/09/2012 For qualified plans, taxation takes place at the sale of the shares.A social security tax exemption is applied (subject to duly notification to French social authorities) to the acquisition gain if a holding period from option grant to the sale of the shares of 4 years is met (options granted as September 29 2012).However a specific employee and employer contribution has been implemented (10% paid by employee at date of sale on acquisition gain and 30% paid by employer at grant date on a specific basis subject to company’s election).
For tax purposes the acquisistion gain is taxable as salary and thus subject to progressive tax rate from 0 to 45% and eventually 4% marginal rate of tax on high revenues.
The capital gain is taxed is also to progressive tax rate from 0 to 45% and eventually 4% marginal rate of tax on high revenues.Nevertheless, taxation at progressive rate is balanced with a system of specific abatement depending on the period the securities are hold by taxpayer (50% between 2 and 8 years holding period and 65% beyond 8 years) Please note that there is a specific regime for qualified RSUs in France Non-qualified plans For non-qualified plans, taxation takes place at exercise and the acquisition gain is treated as salary for income tax and social security purposes Non qualified RSUs are taxable at delivery of the shares.A new withholding tax has been imposed on the gains of non-residents on the French source portion of the gain, whether the plan is qualified or not.Principal residence gains and losses Capital gains on the sale of real property located in France are generally taxable whether or not the owner is domiciled in France.The disposal of a principal private residence by a resident taxpayer (and in some circumstances by non-residents) is not taxable provided that it was the taxpayer’s principal residence at the time of sale.
A gain resulting from the sale of real estate for gross proceeds of up to EUR15,000 is exempt from French tax and if the property was held for 23 years or more.No deduction is allowed for losses arising from the sale of real property in France.Capital losses Capital losses on the sale of securities can be deducted from capital gains of the same nature in the same year or carried forward and set off against future gains for up to 10 ifts are, in principle, not subject to capital gains tax in France.Gifts Gifts are, in principle, not subject to capital gains tax in France.
ADDITIONAL CAPITAL GAINS TAX (CGT) ISSUES AND EXCEPTIONS Are there additional capital gains tax (CGT) issues in France? If so, please discuss? None in particular.Pre-CGT assets The following items of expenditure may be deducted from taxable income.Employee social security contributions are generally deductible from gross employment income.Compulsory pension contributions and a portion of the CSG surtax are deductible from taxable employment income, within certain limits.
Mandatory employee social security contributions paid to the home country scheme are generally deductible for income tax purposes.A standard 10 percent deduction to account for professional expenses (limited to EUR 12,183 on 2016 income) is applied to the employment income of each member of the household.Actual professional expenses may be claimed instead, without limitation, as long as they can be justified.Pensions: The 10 percent deduction applied to pensions is limited to EUR 3,715 per household on 2016 income.Deductions are allowed for alimony made pursuant to a court order and child support payments for minor children that are not part of the fiscal household of the taxpayer.
Deductions of child support payments are allowed for children over 18 if the children need parental support (such as a student) provided the children are not part of the fiscal household of the taxpayer; however this deduction is limited to EUR 5,732 per child for tax year 2016.Support paid to or on behalf of parents is also deductible provided the payments are not disproportionate to the taxpayer’s earnings and that the recipient is in need).Such payments would generally constitute taxable income in the hands of the recipients.Cost of supporting a person over 75 years of age in the taxpayer's home.Rental losses from unfurnished properties up to EUR10,700.
Losses from the exercise of a business or independent professional activity.Contributions to qualified supplementary retirement plans, PERP, PERCO, or contributions made to a plan under the Loi Madelin are deductible from income within certain limits.TAX REIMBURSEMENT METHODS What are the tax reimbursement methods generally used by employers in France? As taxes are paid one year in arrears in France, the one-year rollover method is most generally used for tax reimbursements.In the year of departure, all income paid and earned for the period from 1st January to the departure date should be reported.A current year gross-up calculation should generally be performed if the tax reimbursement is not exempt under the expatriate regime.
Income tax differentials resulting from tax equalization or tax protection are fully taxable in France, unless the assignee falls under the specific tax regime for impatriates.CALCULATION OF ESTIMATES/ PREPAYMENTS/WITHHOLDING How are estimates/prepayments/withholding of tax handled in France? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), etc.Resident taxpayers generally pay their taxes in the year after the income is earned.The tax liability is payable in either three installments or ten monthly payments, at the taxpayer’s option.Unless the taxpayer opts for monthly payments, he/she must make payments on 15 February and 15 May, each equaling one-third of the amount of the previous year’s total income tax.
The final payment depends on when the assessment is issued but generally this will be on 15 September.As there is no withholding of income tax in France, it is prudent to set aside money for taxes.(Note: Surtaxes are assessed separately, usually in October/November.) Pay-as-you-go (PAYG) withholding There is no pay-as-you-go withholding in France for resident taxpayers.However the French government is actually is preparing to implement a pay-as you –go withholding in France fro French tax resident from 2018 year onwards.
Employers must withhold/ on a quarterly basis (starting January 1st, 2016) income tax from compensation paid to non-residents, using the progressive non-resident income tax rates of 0 percent, 12 percent, and 20 percent.PAYG installments This is not applicable, although, taxpayer may opt before October of the tax year to make ten equal monthly payments by bank transfer, beginning in January of the following year, totaling the amount of the previous year’s total income tax payment.
Economics of taxation treasury department
Any additional tax due is payable when assessed.Income tax for the initial year of residence in France is usually not due until 15 September of the year following arrival, since no February or May estimated payments are required.
When are estimates/prepayments/withholding of tax due in France? For example, monthly, annually, both, etc Explaining Taxes to Kids Lesson Plan USAGov.When are estimates/prepayments/withholding of tax due in France? For example, monthly, annually, both, etc.
RELIEF FOR FOREIGN TAXES Is there any Relief for Foreign Taxes in France? For example, a foreign tax credit (FTC) system, double taxation treaties, etc? France has a broad network of income tax treaties, some of which also cover wealth taxes.Beneficiaries of income tax treaties may be exempt from French income tax on certain income, but such exempt income must nevertheless be reported on the tax declaration and is taken into account in determining the tax rate to be applied to the non-exempt income (that is exemption with progression) Help me do my custom taxation term paper 52 pages / 14300 words Business A4 (British/European) 8 hours.
Beneficiaries of income tax treaties may be exempt from French income tax on certain income, but such exempt income must nevertheless be reported on the tax declaration and is taken into account in determining the tax rate to be applied to the non-exempt income (that is exemption with progression).
Income exempted under treaties concluded by France often includes salaries paid from abroad for services actually rendered abroad, income from the rental of foreign real estate, and income from a foreign business Help me do my custom taxation term paper 52 pages / 14300 words Business A4 (British/European) 8 hours.
Income exempted under treaties concluded by France often includes salaries paid from abroad for services actually rendered abroad, income from the rental of foreign real estate, and income from a foreign business.
Foreign tax credits are often available under treaties with respect to taxes paid at source on foreign dividends, interest, and royalties.A notable exception to most of France’s tax treaties is the current income tax treaty with the United States.Under this treaty, American citizens who are tax residents of France must declare their worldwide income in France but are entitled to a tax credit in respect of most U.-source income (interest, dividends, capital gains, rental income) provided that it is taxed in the United States.
Please note that these provisions apply to U.citizens only, and are not applicable to U.permanent residents (green card holders).
In the absence of an income tax treaty, internal relief for double taxation may be available to French tax residents working abroad for a French or other EU employer, or for an employer situated in a country that has signed a tax treaty with France containing an administrative clause, provided the foreign tax paid represents at least two-thirds of the tax that would have been charged in France.The foreign-source income must relate to activities in construction, oil or mineral exploration, or navigation on a French-registered ship and spend at least 183 days abroad in any consecutive 12-month period, or 120 days abroad if he/she or she is in sales prospecting.The exempt income must nevertheless be reported on the tax declaration and is taken into account in determining the tax rate to be applied to the non-exempt income (that is exemption with progression).GENERAL TAX CREDITS Several credits may be claimed against the taxpayer's tax liability, for example: School credits: For residents of France, a tax credit may be claimed for each dependent member of the household at the level of college, lycee, or university.The credits are EUR 61, EUR 153, and EUR 183, respectively.
Charitable donations: A credit of 75 percent of qualifying charitable donations of up to EUR 530 is available, for donations that have been made to organizations that provide food, shelter or medical care to people in need.A further credit of 66 percent of additional charitable contributions is available, to the extent that total donations do not exceed 20 percent of taxable income.Domestic employee: A tax credit of 50 percent of the expense of a domestic employee (salary and related social charges paid by the taxpayer) is available to resident taxpayers.The credit may not exceed EUR 6,000, except in certain situations.This limit is increased by EUR 750 per dependent child.
A domestic employee is defined as one who works in the home, providing, for example, child care, housecleaning, gardening, tutoring, or other services.Residential insulation energy expenditure: Tax credits are allowed to homeowners or renters who undertake qualified expenses related to home insulation or installing energy efficient equipement.Child care expenses: A tax credit is available to taxpayers for child care expenses for children under six years of age outside of the home.The credit is 50 percent of the expense, limited to EUR2,300 per child (thus a maximum credit of EUR1,150 per child).SAMPLE TAX CALCULATION This calculation assumes a married taxpayer resident in France with two children who is on assignment that begins 1 January 2014 and ends 31 December 2016.
The taxpayer’s base salary is USD100,000 and the calculation covers three years.15,845 * Note that the2016 income tax calculation is estimated based on the 2015 rates.The 2015 rates are now available and have been applaied for 2015 year calculation.** The beneficial rules for impatriates apply; therefore, the assignment-related allowances are not considered taxable and are not included in this calculation.* Note that the 2012 and 2013 income tax calculation is estimated based on the 2011 rates.
The 2012 rates will be voted late in the year.Other assumptions All earned income is attributable to local sources.Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.The company car is used for business and private purposes and originally cost USD50,000.The employee is deemed resident throughout the assignment.
Tax treaties and totalization agreements are ignored for the purpose of this calculation.The impact of the impatriate regime with regards to passive income has been ignored.The State and Local Tax Deduction: A Primer March 15, 2017 Key Findings Taxpayers who itemize deductions on their federal income tax are permitted to deduct certain taxes paid to state and local governments from their gross income for federal income tax liability purposes.State and local tax deductibility would be repealed under the House Republican Blueprint, and capped—along with other itemized deductions—under the campaign plan put forward by President Donald Trump.
The state and local tax deduction disproportionately benefits high-income taxpayers, with more than 88 percent of the benefit flowing to those with incomes in excess of $100,000.The deduction favors high-income, high-tax states like California and New York, which together receive nearly one-third of the deduction’s total value nationwide.Six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of the deduction.The state and local tax deduction in New York and California represents 9.9 percent of adjusted gross income respectively, compared to a median of 4.The deduction reduces the cost of state and local government expenditures, particularly in high-income areas, with lower-income states and regions subsidizing higher-income, higher-tax jurisdictions.Introduction For Ronald Reagan, it was “the most sacred of cows.
” 1 To Donald Regan, his Secretary of the Treasury, it was a “dragon” to be slayed.
2 Whatever its taxonomy, the state and local tax deduction has proved resilient, warding off foes for decades.It has withstood the accusation that it is regressive, rewarding high-income taxpayers.It has persevered despite being labeled a subsidy of wealthy, high-tax states funded by the rest of the country.It has endured economists’ suspicion that it distorts state and local government expenditures.Thanks to the tenacious support it enjoys in some quarters, it has survived parries from the left and from the right.
Again imperiled by the House Republican tax reform plan, which would eliminate all itemized deductions save those for mortgage interest and charitable contributions, its long-heralded demise might actually be in sight.Applicability of the Deduction Under current law, taxpayers who itemize are permitted to deduct certain nonbusiness tax payments to state and local governments from their taxable income.An individual may choose to deduct either state individual income taxes or general sales taxes, but not both, and may also deduct any real or personal property taxes.3 Most filers elect to deduct their state and local income taxes rather than sales taxes, because income tax payments tend to be larger, but those who reside in states which forego an income tax, or who have uncommonly high consumption expenditures in a given year, may opt to deduct sales taxes instead.The sales tax deduction may be taken either by documenting actual expenses or through the use of an optional sales tax table based on personal income.
4 In tax year 2014, more than 95 percent of all itemizers, and 28 percent of all federal income tax filers, took a deduction for state and local taxes.8 percent of filers deducted income taxes, while 6.5 percent elected to deduct sales taxes instead.7 percent of itemizers) also took the deduction for real property taxes.5 Taken together, deductions for state and local taxes represent the sixth largest individual income tax expenditure, estimated to be worth more than $100 billion per year by fiscal year 2018 6 even though most filers do not itemize.7 The value of the deduction is lessened for some payers by the Pease limitation, which reduces itemized deductions by 3 percent of the amount that a taxpayer’s adjusted gross income exceeds an indexed threshold, 8 and by the alternative minimum tax.The House Republican tax plan, like several before it, would repeal the deductibility of state and local taxes outright (along with most other itemized deductions) in favor of significantly lower rates.
9 History of State and Local Tax Deductibility The deductibility of state and local taxes is older than the current federal income tax itself.The provision has its origin in the nation’s first effort at income taxation (eventually found unconstitutional) under the Civil War-financing Revenue Act of 1862, and was carried over into the Revenue Act of 1913, the post-Sixteenth Amendment legislation creating the modern individual income tax.
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The rationale for the original provision only comes down to us in fragments, though a fear that high levels of federal taxation might “absorb all the states’ taxable resources,” a concern first addressed in the Federalist Papers, appears to have held sway.10 Lawmakers sought a bulwark against the possibility that “all the resources of taxation might by degrees become the subjects of federal monopoly, to the entire exclusion and destruction of state governments,” 11 and found it in a federal deduction for state and local taxes.This caution would appear prescient as top marginal rates soared from 7 percent in 1913 to 77 percent by 1918 as American doughboys took to European fields, and in 1944, when the top rate skyrocketed to 94 percent at the height of the Second World War 19 Sep 2016 - Improving Lives Through Smart Tax Policy. Increases the standard deduction from $6,300 to $15,000 for singles and from gross income for most Americans (above-the-line), up to the average cost of care in their state. Donald Trump's tax plan, as described on the website as of today, “will lower the .
This caution would appear prescient as top marginal rates soared from 7 percent in 1913 to 77 percent by 1918 as American doughboys took to European fields, and in 1944, when the top rate skyrocketed to 94 percent at the height of the Second World War.
Even in the postwar era, the top marginal rate would remain at 91 or 92 percent every year from 1951 until 1964, when it declined with the implementation of the Kennedy tax cuts.12 During this era, the state and local tax deduction prevented combined federal, state, and local income tax rates from exceeding 100 percent.13 In time, however, the prudence of the provision would be called into question.Neglecting some modest tinkering—the exclusion of license fees and excise taxes on alcohol and cigarettes in 1964, and later the exclusion of motor fuel excise taxes—the state and local tax deduction went largely unchallenged until the U.Department of the Treasury, under the direction of Secretary William E.Simon, issued Blueprints for Basic Tax Reform in the waning days of the Ford administration.The report, issued in January 1977, recommended the retention of state and local income tax deductibility while jettisoning the deduction for sales and property taxes.14 In 1983, Senator Bill Bradley and Congressman Dick Gephardt teamed up on a Democratic tax reform proposal that sought to proscribe the deduction, limiting it to income and real property taxes.A competing Republican plan introduced by Congressman Jack Kemp and Senator Bob Kasten would have retained it exclusively for real property taxes.
Then, in 1984, at the behest of President Ronald Reagan and with Secretary Donald Regan at the helm, the Treasury unveiled a comprehensive tax reform proposal (retrospectively known as Treasury I) which incorporated the complete elimination of state and local tax deductibility.15 After decades of quiet existence, the deduction was suddenly vulnerable, and the stage was set for it to assume a central role in the debate surrounding the Tax Reform Act of 1986.“We were slaying a lot of dragons,” Secretary Regan would later say, reminiscing about the heady days when, working in secret, a small cadre of Treasury staffers slashed through the tax code to develop a comprehensive tax reform proposal that could be championed by President Reagan.16 Dragons, however, are not easily slain, and this one had powerful defenders.A high-income and high-tax state, New York—and particularly New York’s wealthy elite—benefited mightily from the deduction, which one congressman from the state termed “a matter of survival.
” Governor Mario Cuomo, Senator Alfonse D’Amato, and a powerful coalition studded with luminaries the likes of David Rockefeller (chairman of Chase Manhattan Bank), James Robinson III (chairman of American Express), and Laurence Tisch (chairman of Loews Corporation), joined by public sector unions and the Conference of Mayors, went to war.In time, proponents of state and local tax deductibility would forge alliances with other interests threatened by tax reform, and their advocacy very nearly derailed the entire tax reform agenda.17 In the end, the Tax Reform Act of 1986 did nothing more than withdraw the general sales tax deduction, which was later restored in part.18 In 2005, an advisory panel convened by President George W.Bush declared that eliminating the deduction would offer a “cleaner and broader tax base” and a more equitable tax code, though nothing came of it.
19 But if the dragon had not been felled in the 1986 tax reform effort, neither had its foes.Today, the deductibility of state and local taxes again finds itself on the chopping block, recommended for elimination along with most other itemized deductions by the House Republican tax reform “Blueprint” championed by Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady.Four decades after the Treasury Department first floated the curtailment of deductibility, it is again necessary to consider the intended purposes of the state and local tax deduction and the arguments advanced for and against its continuation.
Opponents of the state and local tax deduction point out that it is regressive in that it is largely claimed by wealthier taxpayers, that it subsidizes higher taxes and potentially wasteful state and local spending, that it involves a transfer from lower-income to higher-income states, that it may encourage self-segregation by income groups, and that it favors public over private provision of certain services.
Proponents counter that the deduction better aligns taxable income with ability to pay.They also argue that subsidization of local government expenditures offsets a tendency toward providing less than the optimal amount of government services, as determined by local taxpayers, due to what are known as spillover effects.Some local expenditures chiefly or exclusively benefit local residents, while others benefit residents and nonresidents alike.If residents are less willing to pay for government services that benefit nonresidents as well, they may settle on a lower level of service provision than they would prefer absent the spillover.Each of these arguments will be considered in turn.
Benefits for High-Income Taxpayers The lion’s share of state and local tax deductions are claimed by upper-income earners.Only 30 percent of all federal income tax filers itemized rather than claiming the standard deduction in tax year 2014.Of these, over three-quarters reported adjusted gross income (AGI) above $50,000, even though taxpayers with AGIs above $50,000 represent a mere 38 percent of all filers.20 According to the Joint Committee on Taxation, more than 88 percent of the benefit of state and local tax deductions accrued to those with incomes in excess of $100,000 in 2014, while only 1 percent flowed to taxpayers with incomes below $50,000.21 In 1984, a Treasury report went so far as to disparage the state and local tax deduction’s “distributionally perverse pattern of subsidies.
A similar distribution is evident when comparing the value of the state and local tax deduction as a percentage of AGI for taxpayers in different income strata.Taxpayers with AGIs between $25,000 and $50,000 claim, in aggregate, state and local tax deductions worth 2.1 percent of AGI, whereas taxpayers with incomes above $500,000 claim deductions worth nearly 7.23 The elimination of deductibility would reduce the cash income of the top decile of income earners by 1.3 percent, but the reduction would be less than 0.1 percent for each of the bottom five deciles.Value of the State and Local Tax Deduction as a Percentage of AGI Adjusted Gross Income Percentage of Filers Itemizing Source: IRS Statistics of Income (2014) Proponents sometimes posit that the elimination of deductibility would particularly disadvantage wealthy people who live in low-income communities, which could incentivize high-income earners to self-segregate in wealthier neighborhoods.
25 Studies, however, suggest that this effect would be quite modest, if it exists at all, 26 and that in many cases, the effect may run in the opposite direction.High-income earners who congregate in a single community, for instance, may support locally-funded amenities like golf courses and tennis courts, or more stately government buildings and costly public infrastructure—expenditures less likely to earn the support of high earners in mixed-income communities—while exporting some of the resulting tax burden to others.27 Subsidization of High-Income, High-Tax States Just as the state and local tax deduction disproportionately favors wealthier taxpayers, it also benefits states which combine high incomes and high-tax environments.Reliance on the deduction varies widely: the average value of the state and local deduction as a percentage of AGI in the ten states with the highest reliance on the deductions is 6.1 percent of AGI; the median across all states is just under 4.More staggering, though, is the fact that just six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of all state and local tax deductions nationwide, with California alone responsible for 19.
6 percent of the national tax expenditure cost.Any tax provision, no matter how neutral its application, will flow more to states with higher populations.The state and local tax deduction, however, expressly favors higher-income earners and state and local governments which impose above-average tax burdens.
The deduction’s effect is for lower- and middle-income taxpayers to subsidize more generous spending in wealthier states like California, New York, and New Jersey, reducing the felt cost of higher taxes in those states.As the Urban-Brookings Tax Policy Center has observed, state and local governments “are able to raise revenues from deductible state and local taxes that exceed the net cost to taxpayers of paying those taxes, in effect allowing those jurisdictions to export a portion of their tax burden to the rest of the nation.” 29 To the extent that the more generous spending is financed through progressive taxation at the state level—which might be imposed at higher rates and on more progressive schedules than would have been viable in the absence of the deduction—some of the regressive effect of the deduction at the federal level may be offset at the state level.30 This is, however, an inefficient and convoluted approach to promoting state tax progressivity, and whatever greater progressivity may exist in a high-income, high-tax state is countered by a federal transfer away from residents of lower-income, lower-tax states.Advocates of progressive taxation typically prefer progressivity at the federal level to progressivity at the state level, as “higher-income taxpayers can avoid progressive state and local taxes either by shifting income or physically moving to a lower-tax state.
” 31 The state and local tax deduction flips this preference on its head, sacrificing progressivity at the federal level in hopes of inducing more progressive state tax structures.Effect on State and Local Government Finances Deductibility of state and local taxes increases state and local government expenditures by reducing the cost of that spending, but estimates differ on the magnitude of the effect.During the 1986 tax reform debate, the Congressional Research Service estimated that the deduction increased state and local spending by as much as 20.Advisory Commission on Intergovernmental Affairs concluded that the increase was on the order of 7 percent 32 and the National League of Cities arrived at an estimate of only 2 percent.33 Other studies have found little evidence of any significant effect on state and local government expenditure levels.34 Furthermore, any reductions in local expenditures “would appear to be concentrated in high income communities where most itemizers now live,” according to one such study.
35 By decreasing the cost of state and local government spending, the federal government provides a subsidy for such expenditures.
Because not all forms of state and local revenue are deductible, moreover, the deduction’s availability can promote greater reliance on deductible income and property taxes to the disadvantage of other possible sources of revenue, including user fees, which might otherwise be favored.36 Using federal tax revenue to subsidize state and local governments—and particularly higher-income taxpayers—has critics on both the left and right, with the chief argument advanced in favor of the status quo predicated on the postulate that local government spending, in particular, is suboptimal.All levels of government must strike a balance between demand for government-provided services and the desire to keep taxes and spending in check, and the democratically chosen balance will vary from place to place.The residents of some localities are willing to accept higher levels of taxation in exchange for greater government service provision; others prefer a smaller government which necessitates lower rates of taxation.Taxpayers may be supportive of increased levels of spending if part of the cost is borne by others; conversely, they may reduce expenditures if they believe that some of the benefit of that spending will be conferred on others.
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Federal subsidies thus place a thumb on the scale, distorting local decision-making.37 Some municipal services are inherently excludable; only residents, for instance, stand to benefit from municipal trash collection.Other amenities, however, like city parks, public parking, bike trails, community centers, and municipal athletic facilities, are utilized both by residents (who pay local taxes) and nonresidents (who do not) alike Best websites to order an term paper taxation 141 pages / 38775 words Premium Writing from scratch Undergrad.Other amenities, however, like city parks, public parking, bike trails, community centers, and municipal athletic facilities, are utilized both by residents (who pay local taxes) and nonresidents (who do not) alike.
This “spillover” theoretically reduces the amount that local residents are willing to pay in taxes for certain services to a level below what they would favor if the benefits accrued only to them.38 A federal subsidy, regressive though it may be, might then be rationalized as a way to restore expenditure decisions to equilibrium rather than artificially inflating demand Pub 17 IRS gov.
38 A federal subsidy, regressive though it may be, might then be rationalized as a way to restore expenditure decisions to equilibrium rather than artificially inflating demand.
Several objections to this model quickly emerge Pub 17 IRS gov.Several objections to this model quickly emerge.As the economist Helen Ladd argues, “Positive spillovers from public sector spending are more likely in low-income or heterogeneous cities than in higher-income communities where itemizing is more common,” 39 which is one reason why, under the current regime of tax deductibility, high-income individuals may find it even more advantageous to live together in the same communities best websites to buy an ecology lab report Platinum Writing from scratch Business.As the economist Helen Ladd argues, “Positive spillovers from public sector spending are more likely in low-income or heterogeneous cities than in higher-income communities where itemizing is more common,” 39 which is one reason why, under the current regime of tax deductibility, high-income individuals may find it even more advantageous to live together in the same communities.Moreover, the deduction is a blunt instrument, applying no matter what the possible spillover effect of an expenditure is, and without regard to the mix of services that exist in a community.40 Many public expenditures have little or no spillover, yet they receive the same subsidy as those easily enjoyed by nonresidents.Specifically, it is highly unlikely that much spillover exists from high-income to low-income communities, yet it is high-income areas and taxpayers who benefit disproportionately from the deduction.
The argument particularly suffers if local government revenues hew closely to the benefit test, where tax (and fee) liability closely tracks benefits received—and this, it emerges, is frequently the case.Charles McLure, one of the architects of Treasury I, put it this way: If … the financing of state and local public services reflected more accurately the benefit of such services, the case for reducing tax competition via federal subsidies would be weak and perhaps vanish.Indeed, in a world of user charges and benefit taxes the existence of such subsidies would worsen the allocation of resources, rather than improving it, by reducing the cost of such services to state and local beneficiaries/taxpayers and causing over-production of the subsidized activity.41 Whereas the federal government engages in a broad array of cash transfers, social insurance, and social welfare spending, such expenditures are responsible for a modest portion of state, and particularly local, budgets.3 percent of local budgets, and general expenditures—which would include many of the amenities which might benefit nonresidents—only account for 5.6 percent of local government budgets nationwide.43 A more generalized case of suboptimal state and local budgeting is that of “fiscal imbalance,” where state and local expenditures are assumed to be suboptimal across the board, thus justifying federal subsidies designed to encourage higher levels of spending across all inferior governmental units.44 To the extent that this concern is valid, however, the state and local deduction is a blunt instrument poorly suited to the task, as it flows most generously to those states and localities with the highest innate revenue capacity.
Better calibration is possible with almost any other form of aid to states and localities.Census Bureau, “State and Local Government Finances” (2014) Table 3.State and Local Expenditures by Spending Category Expenditure 3.
6% A Congressional Budget Office (CBO) analysis summarized the effect of the deduction by noting that it “may spur state and local governments to provide services that are neither federal in nature nor targeted toward areas of national concern” and thus “interfere with the sorting mechanism that otherwise helps keep local public services at levels appropriate to their value to local taxpayers.” 45 One of the virtues of federalism is the ability for state and local governments to experiment with different models of taxation and service provisions, with the recognition that what is appropriate or desirable for one population may be disfavored by another.Whatever balance communities might otherwise adopt, however, may be skewed by deductibility.As the CBO notes, “Because of the subsidy, too many of those services may be supplied, and state and local governments may be bigger as a result.” 46 Additionally, the existence of the deduction can incentivize government provision of municipal services that might be provided more efficiently by the private sector, not because of some advantage or preference for government provision of the service, but because the cost, for instance, of municipal trash collection receives the benefit of the state and local tax deduction, whereas the economically equivalent private provision of waste management services would receive no such tax advantage.
47 From the start, local taxes remitted in exchange for local benefits (like license taxes) were not deductible.48 In part because the deduction gives an advantage to general taxes over fees, any principle of excluding “consumption” argues against the deduction more broadly.The Double Taxation Argument The coexistence of federal and state income taxes absent deductibility is sometimes characterized as a tax upon a tax, as federal taxes are paid on the share of income foregone to state (and potentially local) governments.Most taxes imposed by different levels of government are susceptible to some variation of this argument, but the crux of the case for deductibility is the taxpayer’s ability to pay.As noted previously, at times when the top marginal federal individual income tax rate exceeded 90 percent, it would have been possible for some income to be taxed at combined rates in excess of 100 percent in the absence of deductibility.
It is, of course, fairly implausible to conclude that rates would have stood as high in the absence of the deduction, or that earning a marginal dollar above some threshold would actually expose the taxpayer to more than a dollar’s worth of taxes.Even if such fears were warranted, however, they have little relevance under today’s rate schedule, or any rates which might emerge from a tax reform package which includes the repeal of the state and local tax deduction.This argument for the deduction also depends on the extent that higher levels of state and local taxation represent, at least in part, a choice about the consumption of government services.If state and local tax rates are largely invariant to service provision or fund services not utilized by many taxpayers, then these state and local taxes may be seen as reducing capacity to pay federal taxes.If, however, these taxes correlate strongly with services provided—and such a correlation is far stronger at the state and local level than it is at the federal level—then arguments about double taxation are less salient, 49 particularly when variations in local government taxation can be explained in part by consumption that might otherwise have been supplied by the private sector.
In a federal system, moreover, individuals receive services from federal, state, and municipal governments.Each layer of government can be viewed as providing its own package of services, which one would expect to be “priced” separately.When two taxes levied by a single government, or similar types of governments (for instance, multiple states), fall disproportionately upon the same income or economic activity, this represents a clear case of double taxation.When different levels of governments levy taxes for discrete sets of services, the rationale for a deduction for taxes paid is far weaker.
A closely related argument holds that a large proportion of local government expenditures—schools, roads, police and fire protection, and the like—can be understood as investments in human and physical capital, and thus would be deductible as capital expenditures under an ideal tax code.
Of course, not all local government spending can be reasonably construed as capital investment.States government budgets, moreover, tend to include far more welfare spending and transfers that clearly do not constitute capital expenditures.The strength of this argument for local, if not for state, governments, turns at least in part on whether it is appropriate to consider a mandatory tax payment a capital expenditure even if the return to capital is accrued by other people or entities.When individuals and businesses purchase capital goods, they are—or at least they can designate—the intended beneficiary of any return on investment.When governments levy taxes, the payors have little control over either the investment or its beneficiaries.
Federal Revenue Implications According to the Tax Foundation’s Taxes and Growth Model, eliminating the state and local tax deduction would raise an additional $1.8 trillion in federal revenues over a ten-year window on a static basis, and $1.7 trillion on a dynamic basis which takes changes in economic activity into account.50 The adverse economic impact is estimated at a modest 0.4 percent reduction in gross domestic product (GDP), 51 which would be more than counterbalanced by any offsetting rate reductions.
The small impact on economic growth makes it an enticing offset for more growth-oriented revenue-reducing reforms elsewhere in the system.Distributionally, the lower four quintiles of households would see their after-tax income decrease by 0 to 0.7 percent on a static basis under the deduction’s repeal.Households in the highest quintile would experience a tax increase of 2.52 Dynamic effects, which take into account changes in behavior associated with taxes, are slightly larger.After-Tax Income Change by Quintile Income Quintile Dynamic % Change in After-Tax Income 0% to 20% Conclusion Increasingly a costly anachronism which favors high-income earners in wealthy states, the state and local tax deduction has long outlived its usefulness.As such, it is an attractive “pay-for” to provide a revenue offset to rate reductions or other reforms.The House Republican tax plan would repeal the provision outright, while the campaign proposals of President Donald Trump promote caps on itemized deductions, which would limit the value of the deduction.
Whether as part of a plan emerging from one of these proposals, or as part of a tax reform plan still on the horizon, the end of the deduction for state and local taxes paid offers a rare convergence of the goals of both the left and the right, offering the opportunity to roll back a regressive element of the tax code to offset the cost of pro-growth reform.Forty years after the first rumblings of discontent in the Treasury’s Blueprints for Basic Tax Reform, the repeal of the state and local tax deduction may be an idea whose time has come.Liebschutz & Irene Lurie, “The Deductibility of State and Local Taxes,” Publius 16, no.2 Jeffrey Birnbaum & Alan Murray, Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform (New York: Random House, Inc.4 Yuri Shandusky, “State and Local Tax Deductions,” Tax Notes (July 1, 2013): 87.Department of the Treasury, “Tax Expenditures FY 2018 ,” Department of Tax Analysis, Sept.For purposes of rankings, we combine defined contribution and defined benefit employer pension plans into one larger expenditure, as we do with the components of state and local tax deductibility.With all expenditures considered separately, deductibility of state and local taxes other than those on owner-occupied homes currently ranks seventh, while deductibility for taxes paid on owner-occupied homes ranks twelfth.7 Internal Revenue Service, Statistics of Income.
8 Kyle Pomerleau, “The Pease Limitation on Itemized Deductions Is Really a Surtax,” Tax Foundation Tax Policy Blog, Oct.
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