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French Employment law – Rupture conventionnnelle and dismissal: you will pay more taxes and social security contributions starting January 1st, 2027! - Employees, managers, senior executives

The draft Finance Bill (PLF) and the draft Social Security Financing Bill (PLFSS) for 2027 represent a fiscal and social tsunami (if the legislation is passed as is) for employees dismissed or leaving their company through a negotiated termination agreement starting January 1, 2027.

This will increase the cost of dismissals and negotiated terminations for companies.

For employees, dismissals and negotiated terminations will be much less advantageous from a tax and social security perspective.

These two pieces of legislation are therefore very bad news for both employees and companies.

Explanation.

With the aim of standardization, the draft budget law (PLF) and the draft social security financing law (PLFSS) for 2027 propose a single exemption ceiling that would align the tax and social security treatment of severance payments.

This single exemption ceiling would be set at 1 PASS (48,060 euros in 2026) instead of the current 2 PASS for social security contributions and 6 PASS for income tax.

This measure, presented as simplifying the tax and social security treatment of severance payments, will in reality result in employees paying more taxes and social security contributions.

In practice, if you receive more than 48,060 euros in severance pay, the excess amount will be both taxable and subject to social security contributions.

"Old" system before January 1, 2027

"New" system from January 1, 2027

Tax exemption: 6 times the annual social security ceiling (PASS), i.e., €288,360

1 times the annual social security ceiling (PASS), i.e., €48,060 (in 2026)

Social security exemption: 2 times the annual social security ceiling (PASS), i.e., €96,120

Compensation received as part of a conciliation agreement before the labor court, a redundancy plan (PSE), or a negotiated termination will also be affected by this reform.

The draft budget law (PLF) and the draft social security financing law (PLFSS) are still under review by Parliament, which must adopt them. The measures presented may be subject to change and are not final (see our observations in paragraph 1 below).

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1) TAX ASPECTS: Severance payments will be taxable starting at €48,020 (compared to €288,360 previously in certain cases) from January 1st, 2027

Article 2 of the 2027 Finance Bill aims to limit the income tax exemption for severance payments to 1 PASS (Annual Social Security Ceiling), regardless of the type of termination.

Initially, the draft budget law (PLF) did not include any measures to postpone the entry into force of these provisions, suggesting that the measures presented were likely to apply retroactively to compensation received in 2026 and declared in 2027.

The Finance Committee of the National Assembly adopted an amendment on October 7, 2026, setting the entry into force for January 1, 2027.

The 2027 draft budget law stipulates that severance payments exceeding one annual social security ceiling (PASS) (€48,060 in 2026), resulting from a job protection plan (PSE) or a collective redundancy agreement (RCC), which currently benefit from a full exemption, will be taxed and subject to social security contributions.

The conclusion of a conciliation agreement will not allow for a tax exemption exceeding one annual social security ceiling (PASS).

Determining the applicable legal framework based on the termination date

Dismissal, retirement: Date the letter is sent or the date it is hand-delivered against a receipt.

Individual negotiated termination: Date the termination agreement is signed by both parties.

Other scenarios: Date the termination is notified or the agreement is concluded, establishing a legally binding date for the termination.

Thus, the termination date determines the applicable legal framework.

The date on which the severance payment or the court decision is issued has no bearing on the tax and social security treatment applied to these sums.

Amendments adopted on October 14, 2026

Two amendments, Nos. I-1300 and I-1591, were tabled on October 9, 2026, and adopted on October 14, 2026.

They rewrite Article 2 of the 2027 Finance Bill by:

• deleting paragraphs 5, 6, 7, and 10 of Article 2, i.e., the general rewriting of Article 80 duodecies, 1;

• adding a new paragraph in their place: only the allowances it lists become taxable above a certain annual social security ceiling (PASS), assessed on the date of payment;

• renumbering point 4 of Article 80 duodecies to point 1, the current point 6 to point 2, and correcting a reference (point 6 becomes point 3).

Therefore, the new ceiling of one PASS (annual social security ceiling) would only apply to:

• the former 4th point, the retirement allowance;

• the former 6th point, the severance payment under a negotiated termination agreement.

The current 1st, 2nd, and 3rd points of Article 80 duodecies retain their existing rules:

• 1st point: compensation awarded by the labor court, including the IFC (supplementary compensation) under Article L. 1235-1, which remains exempt up to the limit of the applicable scale;

• 2nd point: compensation paid within the framework of a redundancy plan;

• 3rd point: severance and settlement payments, which remain exempt up to the higher of the statutory or collectively agreed amount, twice the annual salary, and 50% of the compensation, within a limit of 6 PASS.

Therefore, if this version is maintained, severance payments, with the exception of negotiated severance pay and retirement allowances, would not be affected by the new ceiling of one PASS for liability to income tax.

To read all the article, please click on the link below

https://consultation.avocat.fr/blog/frederic-chhum/article-2984382--french-labour-law--rupture-conventionnnelle-and-dismissal-you-will-pay-more-taxes-and-social-security-contributions-starting-january-1st-2027-employees-managers-senior-executives.html

                 

 

Sources :

https://www.assemblee-nationale.fr/dyn/17/textes/l17b3211_projet-loi#D_Article_6Simplifier_le_regime_social_a

  • Article L242-1, II, 7° CSS :

https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000038836902

  • Article 80 duodecies CGI :

http://legifrance.gouv.fr/codes/article_lc/LEGIARTI000041464202

 

 

 

  • Rupture conventionnelle collective : le jackpot fiscal pour les salariés ! (Merci Macron). https://www.village-justice.com/articles/rupture-conventionnelle-collective-jackpot-fiscal-pour-les-salaries-merci,26896.html

 

Salariés cadres : combien négocier sa rupture conventionnelle ? https://www.village-justice.com/articles/Salaries-cadres-combien-negocier,13875.html

 

 

Frédéric CHHUM avocat et ancien membre du conseil de l’ordre des avocats de Paris (mandat 2019-2021)

CHHUM AVOCATS (Paris, Nantes, Lille)

e-mail: chhum@chhum-avocats.com

www.chhum-avocats.fr

https://www.instagram.com/fredericchhum/?hl=fr

Paris: 34 rue Petrelle 75009 Paris tel: 0142560300

Nantes: 41, Quai de la Fosse 44000 Nantes tel: 0228442644

Lille: : 45, Rue Saint Etienne 59000 Lille – Ligne directe +(33) 03.20.57.53.24

 

 

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