Income tax and US residents in France: an overview

Everyone who lives in France is obliged to submit a French income tax return. Non-residents must declare certain kinds of revenue from French sources – the most common being property rental income.

It is important, especially when moving to France, to be aware that it is your responsibility to make your declaration. Ignorance is not a valid excuse.

You are liable to be assessed for French tax from the date when you become a French tax resident (usually when you move over) and the country in which you should declare and potentially pay tax is not a matter of choice but a fact based on a fixed set of criteria. 

Once you are in the French tax system, this involves regular tax-at-source payments on income that France can tax directly, such as French pensions and salaries, as well as installments taken from your bank account by direct debit based on estimates of other recurring income that you have previously declared. 

There is also then an obligatory annual declaration of income for the French tax year (the same as the calendar year) submitted the following spring. This is to check that the correct tax has been paid taking into account all your income, family situation and applicable allowances. 

In order to make this assessment, France takes taxable income (minus certain allowed deductions) and applies progressive tax-band rates (up to 45%) to this income after an initial zero-rate band.

In the first year of filing in France, you should declare worldwide income received from the date you became a French tax resident. You should also declare the existence of any US (or other foreign) bank accounts you still hold, as well as certain foreign investment or savings contracts held outside France – notably foreign life assurance policies (and similar “capitalisation” contracts). There is a specific tax declaration section for doing this, separate to the sections for declaring income received.

There are French tax credits and reductions triggered by a range of expenses such as employing a person in your home or paying union membership fees. Recent additions included a credit against costs to install electric car charging points. 

Credits also exist for making gifts to good causes. In fact, after application of all the relevant adjustments, less than half of households in France actually pay income tax. 

Certain additional taxes apply to income of high earners (over €250,000/year for a single person or double for couples).

Almost everyone must now declare online and it is important to register for an account on the tax website however it is still possible to use paper forms for your first declaration or for people unable to use the internet. 

French tax residents must declare their worldwide income to France but tax treaties exist with many countries to avoid double taxation. 

Unusually, the US requires most of its citizens to file annual US returns even if they are tax residents in another country - although this does not necessarily mean the same income is taxed twice and in most cases Americans in France pay no actual US federal tax.

When are you a ‘fiscal resident’ of France?

To recap, once you have physically moved to France with the intention of making it your home, you are usually fiscally (tax) resident. This does not include visits for holidays or to a second home in France.

This means that you should declare all your worldwide income to France for assessment, even though it might not necessarily be taxed. Where you are fiscally resident is not a question of choice but is subject to rules and thus a matter of fact.

If in doubt, several criteria are used by France, first of all, whether your main home (foyer) is in the country, not just a holiday residence. This should be where you live ‘habitually’ and it should be available for your use and not rented out (unless occasionally) and you probably receive utility bills at the address in your name. Some couples have different fiscal residency (see below). 

If you are part of a couple your foyer is probably also where your spouse or partner and any dependent children also live.

If this cannot be clearly determined, then the second main indicator, especially if you have multiple residences, is whether you spend most of the calendar year in France. 

Further factors that may be of relevance are where you organise your financial affairs from (‘the center of your economic interests’) and/or whether or not you run any French-based businesses. 

If you have more than one work/business interest, it will be the main one that will be significant – the one that takes up the largest amount of time and/or generates the most income.

While ‘most of the year’ will often mean at least 183 days in a given tax calendar year, it is not correct to say that someone spending less than this number of days in France could never be considered a fiscal resident. 

For example, someone spending five months in France, four in the US and three in Italy is still spending more of their time in France than in any other country and may still be deemed a French fiscal resident. 

It is best to avoid cutting this too fine. If the tax office is in doubt over where you may have been on certain days they are liable to assume it was France, so you should allow at least a good month of difference between other places and France to be on the safe side, according to English-speaking French tax lawyer Laurent Gravelle from Sophia Antipolis in the Alpes-Maritimes.

Assuming you have become a fiscal resident by moving to France and/or spending more of the tax year there than anywhere else, you should declare to France worldwide income received as of the day you first arrived, not after (for example) the period of 183 days.

With regard to the ‘center of economic interests’ test, indicators of the ‘center’ being in France might include a person receiving most of their bank statements in France or having a French will or French healthcare rights. 

According to impots.gouv.fr other indicators include it being the location of your main investments, where you ‘run your affairs’, where you do most of your work or the place where most of your income comes from.

In some cases being a fiscal resident may require a combination of the criteria discussed here rather than any one alone.

The US-France tax treaty includes tie-breaker rules at article 4 to be used in rare cases where tax residency is hard to determine, for example, with the country of nationality tipping the balance if necessary. 

US citizens must note, however, that while the US-France tax treaty helps avoid double taxation, the US federal government claims the right to continue to assess its citizens for US tax wherever they live, so many Americans continue to have US tax-filing responsibilities in France. 

Fiscal residency is determined individually and it is possible for one partner in a couple to be a fiscal resident of France and not the other. In this case, typically, it would be necessary to make a joint declaration in which you declare all the worldwide income of the French-resident partner and the French-sourced income of the other. 

A note on state taxes: Many US states have state (as opposed to federal) income taxes and some US states may still consider you a tax resident after you move abroad unless you clearly end your state ties - so it may be worth checking your former state’s rules before you leave.

The ‘tax household’

In France, the foyer fiscal (tax household) declares together on the same declaration, though there are separate columns so different people’s income streams can be identified. This may be the same as the whole ‘household’ (le ménage), or there can, less commonly, be more than one foyer fiscal under the same roof.

A foyer fiscal could be made up of, for example, a single person or a couple who are married or in a recognised French or other civil partnership (the French civil partnership being the Pacs).

It can also include dependent children who live with them (including some students) and other people who live with them free of charge and who have a disabled person’s card such as elderly relatives.

US declarations for Americans in France

As mentioned above, Americans in France remain liable in most cases to complete US income tax returns annually, one exception being if you gain French citizenship and renounce US citizenship.

There have been moves by some US politicians to change this (including proposals to allow Americans abroad to elect to be classed as ‘non-resident US citizens’ for tax purposes with filing in this case to be obligatory only for certain US-sourced income) but no such change has yet been put into effect. 

Usually, US tax returns must be filed by April 15 of the year after the tax (calendar) year, but US citizens resident abroad are allowed a two-month extension, so to June 15. 

Note, however, you are exempt from filing if your income for the tax year was below certain low income levels, which depend on whether you are aged below or above 65. The levels are increased for a ‘qualifying surviving spouse’, which applies in the two years after the death of a spouse. 

So, if a US citizen lives in France, they still normally must file a US federal tax return (Form 1040) reporting worldwide income, including US incomes but also incomes such as French salary or self-employed income, French pensions, investment income (interest, dividends, capital gains…), French rental income etc. 

While this can be time consuming, in reality many Americans in France pay little or no actual US income tax due to factors such as:

• Double tax treaty rules as to which country has the first right to tax a certain income, with the other offering a tax credit to off-set foreign tax paid. See here for IRS information on foreign tax credits (these provide US tax credits against tax paid to France on the same income).

• The foreign earned income exclusion (under certain conditions, French work income can be tax-exempt up to $130,000) and foreign housing expenses exclusion/deduction

Note that Americans in France also have to report the existence of their French and other non-US bank accounts via a FBAR report, if these accounts hold a total of $10,000 or more. This is due annually, at the latest by October 15. 

Amounts held in certain non-US accounts and other financial holdings also have to be reported on Form 8938 as part of the FACTA reporting requirements.

People with ‘adjusted gross income’ of less than $89,000 can file their tax returns online free of charge. 

Income not in dollars must be converted (see here about accepted methods).

You can find more detail on US tax filing requirements for US citizens abroad on the website of the IRS.

The IRS also has a telephone help line for expatriates on 001 267 941 1000.