# U.S. retiree to France taxation (newbie)



## TGKimmy (Dec 3, 2020)

Hello, all! 
I'm a newbie to your forum, which is a great source of information. But, I am really confused about US retirees and their taxation by France.
We will be buying a home in France and moving there year-round from the U.S. We will be 67 when we arrive. We will not be working. We will be drawing our U.S. SS as well as proceeds from 401k, IRAs, and other investment income.
What taxes should we expect to pay on this income from the U.S.? I have read on these forums that SS/401k/IRA is not taxed by France, due to the taxation agreement between the two countries. But, what about the other investment income? 
Then, I read stuff like this from an online source: 
"Foreign residents of France are also taxed on their retirement income. Whether this is from a pension or otherwise, you will be required to show proof of your financial independence and pay taxes accordingly."
So, I'm completely confused. 
Please help! We'd like to have an idea of what our expenses will be, and taxes seem to be the biggest and hardest to comprehend.
I'll be very appreciative if you could help me wrap my head around this.


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## Bevdeforges (Nov 16, 2007)

Hi and welcome!

Taxation for US retirees can be a bit daunting at first - but there is a rhyme and a reason to it. First of all, you will will still have to declare and possibly pay income taxes to the US. (One of the "privileges" of US citizenship is that you are considered tax resident in the US forever.) Generally speaking, the US side of things continues more or less unchanged - but, for those items where you wind up paying French income tax, you have the FTC (Foreign Tax Credit) - form 1116 - to offset double taxation.

On the French side, you declare your worldwide income here in France, too. France has a somewhat different method for offsetting taxes on those items where you pay US taxes. Very simply put (we'll get into details after you get here), you declare your pensions (US SS and IRA proceeds, 401Ks and similar government programs), plus other US sourced income (like investments) on the main forms and then again on a special form for foreign sourced income.

For the pensions, you receive a tax credit at French tax rates, so net-net you aren't paying tax to the French on them. For the investments, the Fisc (French IRS) calculates the necessary adjustment based on the type of investment income. In essence, you pay any difference between the US tax rate and the French tax rate - but in practice it's a bit more complicated than that. The good news is that you only have to report the income in the right place on the forms and the Fisc does all the calculations for you. 

The tricky part is the "other" taxes - things like taxe foncière and taxe d'habitation, though those are undergoing changes right now so hard to generalize about. (Supposed to be phasing out, but after this Covid stuff it's probably safe to assume taxes everywhere will be going up in the coming years.) The rates for these two forms of property tax also vary from one town to the next, so impossible to predict until you have a specific property to deal with.


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## TGKimmy (Dec 3, 2020)

Thank you very much for your welcome and answer! 
If I understand correctly, we will pay our usual U.S. income taxes to the U.S. And then we may pay some French taxes on part of our income, but we will be credited for the tax we pay to the U.S. so we are not paying double. Bottom line: we WILL pay more taxes than if we were living in the U.S. But, surely that amount will not be exorbitant, right? I mean, lots of people retire there from the U.S., so it must not be too bad. (I was aware that we would have some property taxes in addition to the income taxes.) Do you think if we have $90,000 in income and we end up paying 25% to the U.S. in taxes, would the France tax be as much as another 25% of the part that's not U.S. SS, say maybe $15,000, so 25% of that 15K, being $3750 to France?

And, I read somewhere that there is a 7.5% tax we'll pay that goes towards our participation in the France healthcare system. (I understand that we must come to France with private insurance and then after three months we can apply for the France healthcare system, but it may take a while to get the paperwork processed, so have at least a six-month private insurance policy in hand.) So, how/when is this tax charged? Is it 7.5% of your total income as reported on your taxes. From the above example, if we have $90,000 in U.S. SS and 401ks and other income, we would be paying $6750 for the health tax? And, is that 7.5% each for my husband and I? The $90,000 would be our combined income.

I really admire your willingness to answer everybody's questions, and you always do it so well, too. So, thank you for helping me out!


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## 255 (Sep 8, 2018)

TGKimmy -- Bev's info. was spot on. Let's use your numbers as an example: say you have total distributions from SS, your 401Ks, your IRAs and other investments of $90,000 and pay 25% in taxes to the US ($22,500.) In any event, for this example let's assume your $90K ($7500 monthly) equates to $3,000 from SS, $3,000 from 401K and IRA distributions and the remainder from "other investments" ($1,500,) monthly. So in this example, you'll be taxed in France on an income of $18,000 (12 x $1.5K) at a rate for an income of $90K. As Bev stated -- it depends on what these "other investments" are to determine the tax rate(s.) You don't get a credit for taxes paid in the US (your US return doesn't come into play) -- you get a credit for the total distribution that you have to pay taxes on, in the US. $18,000 is just a little short of the minimum wage in France (SMIC,) so I do not think you have to worry too much about paying income taxes in France, other than a paper drill to file them! So, lets say, your other income is taxed at 12% in the US and 20% in France -- now $18K x .20 = $3,600 taxes owed to France and $18K x .12 = $2,760 taxes owed to the US (on the same income.) Now, you take Bev's advice and file IRS form 1116

2019 Form 1116 (irs.gov) 

and you'll get a credit of $3,600 to reduce your US taxes. So overall you may pay a little more in taxes because of the higher tax rates in France. But not too bad! Be advised, this is all simplified a bit (we don't know your exact situation.)

You didn't mention if any of your 401Ks or IRAs were "Roths." but if they were you could theoretically structure yourself to pay zero tax. Say if all accounts were Roths (taxes were already paid,) so no tax on distribution in the US and a 100% tax credit on distributions in France, you'd owe no tax to either country (if you are only paying tax on SS distributions, you would owe no tax in the US either, as you'd be under the threshold.) Just a thought experiment.

You might also want to familiarize yourself with the US-France Tax Treaty:

Microsoft Word - FRANCEWEB.wpd (irs.gov) 

As far as your second question concerning joining the French public health care system, you may be a little optimistic on France's ability to process your application expeditiously (especially in the current COVID scenario,) you should probably plan on a year for private cover and cancel the policy, if the process is quicker.

As far as your monetary contribution to join the system -- pension income is excluded. Most of the retirees I've read about, on this forum, do not pay anything. Of course, this could certainly change in the future as COVID expenditures swell! If you do get charged, it'll be based on your non-pension, i.e. investment income. I honestly do not know how or when you'd be charged, but I would assume it would be after you file your first tax return (total conjecture on my part,) maybe someone else will chime in.

Remember also, that the French Health Care System only pays about 70% of costs, so you may want to consider top-up insurance. Cheers, 255


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## TGKimmy (Dec 3, 2020)

Wow! Thank you sooo much for taking the time to be so thorough in your response and giving me actual numbers/examples to see...that really helps! 
Again, a huge thank you to both of you! I feel much better about this subject now.


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## Bevdeforges (Nov 16, 2007)

Just a word, here. There's lots of misunderstanding about how the French tax system works for foreign sourced income. It's actually somewhat simpler than 255's example (and doesn't actually bother with how much tax you are or aren't assessed in the US).

Let's take a very simple example: Say, $90,000 in total income with half from your US pensions (US SS and IRA, etc.) and half from investments of various sorts. On your French forms, you declare the whole $90,000 (converted to euros, of course). The Fisc calculates your French income taxes due - let's say it comes to $20,000 (just because I like round numbers).

OK, you get a French tax credit on the half that is pensions - so one half of that $20,000 is $10,000 that is a direct tax credit. (It doesn't matter if you have a Roth IRA in there somewhere). So your tax bill is knocked down by half to only $10,000. Now, the French tax people do specific calculations based on the types of investments involved - usually taking into account the "usual" US tax rates on the various sorts of investments. I can't explain those calculations to you since I've never had those sorts of investments to deal with, however you do get allowances or whatever for the US taxes you are assumed to have paid (nothing to do with what you actually paid). The simple example is capital gains - taxed quite a bit higher in France than in the US, so the Fisc just "assumes" you paid the standard 15% and what you ultimately pay winds up being the difference between the US rate and the French rate. (Gross oversimplification, but that's the principle anyhow.)

On that 7.5% - it's a special tax that is related to the national health system and is normally levied on foreign income that is not subject to the French system of tax withholding. But, it currently doesn't apply to US SS or other US pension income. It also has no relationship to whether or not you are enrolled in the national health system, even though people refer to it as "cotisations" just like the other social insurances taken from a person's paycheck here. It may apply (at 7.5% or at a different rate) to your investment income or only to parts of your investment income. 

You may want to look into joining up with AARO - Association of Americans Resident Overseas a US expat group headquartered in Paris that deals with lots of tax and financial issues that will be of interest to you. Even if you're not in the Paris area, they make lots of information available on their website and some of it is in their members only space.


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## TGKimmy (Dec 3, 2020)

Great!! Thank you!


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