TLDR: Pay-as-you-earn (PAYE) withholding is an advance payment system based on an estimate of your income. If the advances paid during the year are less than the tax due, you must pay the difference, known as the tax balance. This happens because PAYE does not account for income changes or family situation updates during the year. If the balance exceeds €300, you can automatically spread payments from September to December of the following year.
What is a tax balance?
The tax balance is the difference between the final annual tax (calculated on the year’s income) and the sum of advances or withholdings already paid in the same year. For example, if the tax due is €22,331 and you paid €18,304, you will owe a balance of €4,027, payable from September of the following year.
Why doesn’t PAYE withholding cover everything?
PAYE is based on an income estimate, often updated to the previous year. It does not account for:
- Salary increases
- Additional income
- Changes in family composition
If your situation changes during the year, PAYE may not cover the actual tax due, resulting in a balance.
How is the balance paid?
The balance for year N is automatically deducted starting in September of year N+1. If the amount exceeds €300, you can split it into equal monthly installments, with the last payment in December. You can opt out of installments if you prefer to pay the full amount at once.
What if I overpaid?
If the advances paid exceed the tax due, the difference is refunded. This happens because PAYE is an advance system adjusted based on the actual tax owed.
Which incomes are not covered by PAYE?
Not all incomes are subject to PAYE withholding. Some, classified as "exceptional incomes" under French tax law, are not included in advance calculations and may result in an unexpected tax balance. Examples include:
- Capital gains from property sales
- Income from occasional activities
- Certain non-recurring allowances
How is the balance deducted?
Installments are debited directly from your bank account if you have chosen electronic payment for advances. Otherwise, you will receive a payment notice with instructions to settle the balance.
What should I do if I receive a payment notice?
If you receive a payment notice, follow the instructions to settle the balance. You can choose to pay the full amount at once or in installments if the amount exceeds €300.