The withholding tax, applicable from January 1, 2019, continues to be a real headache, especially for self-employed workers, in this period of declining profits for many individual businesses.
As of January 1, 2021, the rate of withholding tax, applicable to income earned in 2021, is calculated from the tax due, before reduction and tax credit, for 2019 revenues. If 2021 revenues increase or decrease, the rate can be adjusted up or down at any time.
However, in January 2021, the self-employed person, whether he is reporting industrial and commercial profits (BIC), agricultural profits (BA) or non-commercial profits (BNC), obviously does not know the amount of profit that he will perform in 2021. If it decreases drastically during this year compared to that achieved in 2019, the taxpayer will pay a tax that is much too high which will have to be reimbursed by the State in September 2022. If, on the contrary, his profit increases, he will have to pay additional tax during the last four months of the year 2022.
The self-employed person can try to anticipate a decrease or an increase in his profit for the year 2021 to reduce or increase his rate of levy. But the evaluation of an annual profit, at the beginning of the year, is impossible. If the tax rate is too low at the start of 2021, the taxpayer will necessarily have to revise it upwards before the end of the year, in order not to be penalized for not having paid enough tax. If the rate increase is carried out in November, the date on which the taxpayer can more easily assess his profit, the additional tax will be levied on the last two months of the year. The cash flow effort will therefore be very important.
In addition, if the taxpayer wants to erase his tax by means of a tax reduction, he must do so no later than December 31, 2021. If he chooses to make, for example, a donation to an association of general interest, to benefit from a tax reduction of 66% of the amount of your donation, it must be paid no later than December 31.
In the same year, the taxpayer will therefore have paid all of his income tax and made a donation in an amount greater than this to erase it.
Example: Income tax deducted in 2021 from 2021 income: 5,000 euros.
Donation needed to clear the tax made in 2021: 7,775 euros (7,775 euros x 66% = 5,000 euros).
Total paid: 12,775 euros for a tax equal to… 0 euros.
The cash flow effort is difficult, if not impossible to achieve. The withholding tax therefore seems to achieve its ulterior goals: to transform taxpayers into “bankers” of the State, by forcing them to advance a tax which will be refunded to them the following year, and and make it more difficult to obtain a reduction or a tax credit.
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