How is severance pay taxed in France?

Severance pay (indemnités de licenciement) received in France benefits from a partial or total income tax exemption depending on the nature of the payment and the circumstances.

For statutory or conventionally required severance (indemnité légale ou conventionnelle), the amount is fully exempt from income tax up to the greater of two amounts: twice the gross annual remuneration received in the calendar year preceding the dismissal, or half of the total compensation received. In both cases the exemption is capped at €289,420 (for 2024). The portion above that cap is fully taxable as income.

For payments negotiated outside the legal or collective agreement framework (transaction), the rules are the same, provided the dismissal is genuine. Severance paid following retirement (mise à la retraite or départ à la retraite) has different and less generous exemption rules.

Any taxable portion of severance pay is added to other income and taxed at the progressive rates. However, the taxpayer can apply for averaging (étalement) or use the quotient method to spread the impact over several years, reducing the marginal tax rate applied.

CSG and CRDS apply to the portion above the legal minimum, not to the fully exempt legal portion.