I am the proud mother of two wonderful boys. I love my children very much, but in addition to the joy they bring to my life, they also bring tax advantages. Admittedly the tax benefit is probably less than the overall expense of having children, but one must count one’s blessings!
Let’s take a couple earning €60,000 per annum.
The current tax brackets for 2022 are as follows:
| Income | Tax rate |
|---|---|
| Up to €10,225 | 0% |
| From €10,226 to €26,070 | 11% |
| From €26,071 to €74,545 | 30% |
| From €74,56 to €160,336 | 41% |
| Over €160,336 | 45% |
*These tranches are likely to increase by 5.4% in 2023.
If they have one child? their tax is reduced by half a tax part. Whereas alone they were in the 30% tax bracket, with one child their income is divided by 2.5 to €24,000 per person, which puts them into the 11% tax bracket. Their tax bill would be €3,788 instead of €5,844. The child has saved them €2,056 of tax. If they had a second child, and on the same income, their tax would be €3,226. The second child has therefore saved them €562 euros.
In addition to lowering your taxes, if your child is under six and goes to a child minder or nursery, 50% of these costs, up to a maximum of €2,300 per child may be deducted, so a maximum tax credit of €1,150 per child. This is a tax credit, so in our example above, the couple would pay only €926 in taxes.
After six years old and until they go to high school, as delightful as they are during this time, there are no tax advantages. From high school onwards there is a small tax reduction of €62 per child in high school, €153 per child in sixth form college and €183 per child in higher eduction (provided it is non-remunerated studies).
Download French Tax Guide here.
However when they are in their 20s and pursuing further education, this is the time to look at whether you are better to keep them in your tax household or take them out of your tax household and deduct the money you give them to pay for their studies, accommodation and food etc. I remember, when I was a tax lawyer, suggesting to a lady who had four sons, that she should remove her youngest son from her household – she looked a bit shocked! I meant of course that she should take her son out of her tax household, not kick him out of her actual household. It is quite common for children in France to remain at home during their university studies. The money given to an older child is deducted from the household income before it is subject to tax.
For an adult child to be considered part of your tax household, they must be under 21 on 1st January of the tax year (so 1st January 2022 for the tax return done in 2023), or be under 25 years old on 1st January 2022 and in higher/further eduction as at 1st January 2022 or 31st December 2022. There are also various conditions for children living with an adult relative.
So if we look at the couple above and both their children are at university. In 2021 they could have deducted up to €6,042 per child from their income which would have reduced their tax to €3,021 for the two of them without the children instead of €3,226 had the children been included on their tax return. For 2022, according to the Draft Finances Bill, this deduction is increased to €6,368 per child. For the full reduction to apply, you must be able to prove that the child needs this money, that they are unable to work or, if they have a student job, that they earn less than the minimum wage. You can deduct up to this amount but you have to be able to prove the expenses if so requested. If the child still lives with you, you can deduct their accommodation and food bills, up to €3,592, without need to justify these expenses.
Once your child is removed from your tax household, this will mean that they have to do their own tax return and declare the financial help that you are giving them. However, if they are earning less than the first tax bracket (€10,225 in 2021, €10,777 in 2022) then they won’t have any tax to pay.
This article was kindly provided by Katriona Murray-Platon from The Spectrum IFA Group and originally posted at: https://spectrum-ifa.com/children-and-taxes-in-france/
The above contents and comments are entirely the views and words of the author. FEIFA is not responsible for any action taken, or inaction, by anyone or any entity, because of reading this article. It is for guidance only and relevant professional advice should always be taken before investing in any assets or undertaking any financial planning.