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Not all tax paid in France is eligible for U.S. income tax purposes

If you ever took the SATs, you should be fairly familiar with analogies. If we were to ask – which of these does NOT apply.

Q: France: Romance

  1. France: Fluffy croissants
  2. France: World Class Museums
  3. France: Beautiful Beaches & Mountains
  4. France: High Taxation in the Eyes of the IRS.

Unlike the first three choices which are all synonymous with France, in the eyes of the IRS the 4th is not fully true. For U.S. Citizens & Green Card holders in France, what seems like high tax in French is mostly social contributions & not available for deduction as foreign tax credit.  How can it be that you pay 60+% in tax, but the IRS does not recognize it as such?

Social Contributions

For U.S. Tax purposes, ‘Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are not creditable or deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty. These contributions do not reduce taxable income and cannot be applied as a deduction.

Unfair? That depends. The main reason that these are not eligible for deductions is that the premise is that you, as a resident of France, benefit from these social contributions. You receive healthcare, education, and other benefits that your Social contributions provide.

Wealth Tax – L’impôt de solidarité sur la fortune

French residents with assets in excess of €1,300,0000 face an additional “wealth tax” – known as ISF.  For U.S. tax purposes, this tax is not allowed as a foreign tax credit but can be deducted as a part of itemized deductions on U.S. tax returns.

Whole Story at TFX.

From → TFX Articles