Retirement Bonus Options and the Tax Returns

 

While many of you are preparing your 2020 income tax return for the payment of 2019 income tax, we suggest that you analyze with you the taxation of the retirement bonus that you would have received in 2019.

It is the year of collection of the exceptional income and therefore of the starting bonus at retirement that determines the tax year. If you received your departure bonus in 2020 (date of transfer to the checking account or date of signing of the check in 2020), you must not declare this amount in 2019, but when declaring income received in 2020.

Retirement bonuses are subject to income tax after spreading over 4 years or applying the quota mechanism. Look for the best online tax filing there now.

For the last year, and in order to avoid having you change the bracket and therefore suffer a confiscatory taxation of this exceptional income, two tax mechanisms are offered to taxpayers:

The spread over 4 years of the retirement bonus

This means that a quarter of the retirement bonus will be taxed every year for 4 years. It is simply a matter of dividing the amount of the premium by 4, then adding this quarter to your other taxable income for the current year and then the three following years. Spreading the premium over 4 years will make it possible to smooth the payment of tax over 4 years and avoid changes in the tax bracket. 

Or the application of the quotient when declaring the exceptional income that is the retirement bonus  

Still with the idea of ​​avoiding the change of bracket, the quotient system is a method of calculating tax favorable to the taxpayer. In short, income tax is calculated by adding only 1/4 of the retirement bonus and the income tax surplus corresponding to the taxation of this 1/4 is multiplied by 4 for get the final amount of income tax payable. But be careful, income tax is then paid all at once in the year of the declaration and not during the next 4 years as is the case for the averaging mechanism. 

  • For those who will retire in 2020, the taxation of your retirement bonus will no longer be able to benefit from the deferral system. Only the quotient system will be possible.
  • As you all know, the dividends paid to the majority managers of SARLs undergo the social contributions which one called RSI and which became Social Security of the Independents (SSI).

Only dividends paid within the limit of 10% of the share capital of the SARL remain subject to social security contributions at the rate of 17.20%.

Social Constributions

The affiliation to social contributions of dividends paid to majority managers of SARLs largely explains the dazzling success of SAS whose dividends paid to managers remain subject to social security contributions (and therefore exempt from social contributions).

The Right Steps

A massive arbitrage in favor of the SAS probably a little too excessive when one really compares the advantages and disadvantages of these two methods of collecting the dividend according to the nature of the company. In fact, the dividends paid to the majority manager of SARLs are admittedly a little more taxed, but above all they allow the acquisition of social rights and in particular the right to retirement that will not be authorized by the dividends paid to managers, assimilated employees, of SAS.