France: 2027 significant changes in social security and income tax proposed

Employer Action Code: Monitor

The draft 2027 Social Security Financing Law proposes significant tax changes for employer and employee social security contributions and personal income tax, particularly for termination payments. Together with the draft Finance Budget Bill, the changes would sharply reduce tax-favored treatment of indemnities for mandatory retirement, mutual termination agreements (ruptures conventionnelles), and redundancies for personal income and social security tax purposes by consolidating taxation of such payments under a single tax-favored limit equal to one times the annual Social Security ceiling (plafond annuel de la sécurité sociale – PASS), which in 2026 is 48,060 euros. Overall, these and other proposed measures reflect the government’s priorities of shoring up financing for state social programs, streamlining existing provisions, extending certain provisions introduced by the 2026 Social Security Financing Law and rationalizing certain employer mandates. The bill was presented to Parliament on October 1, 2026, and remains subject to parliamentary approval.

Key details

The bill’s proposed changes (generally effective January 1, 2027, unless otherwise noted) include the following:

• Exemptions from social security and personal income tax for severance indemnities for mandatory retirement, mutual termination agreements and individual or collective redundancies would be consolidated as a single cap equal to the PASS. Currently, tax exemptions apply to two times the PASS for social security and five or six times the PASS for income tax, depending on the nature of separation from employment — except for payments for collective redundancies negotiated under a social plan or collectively agreed terminations, which are entirely tax exempt
• The annual exemption ceiling for social security contributions on value-sharing bonuses (prime de partage de la valeur – PPV) would be one-fifteenth of PASS (€3,204 based on the 2026 PASS), rather than the current flat €3,000 (doubled in specified cases). The enhanced CSG/CRDS contribution (Contribution sociale généralisée/Contribution pour le remboursement de la dette sociale) exemption for employees earning less than three times the minimum wage in companies with fewer than 50 employees would also be extended through the end of 2027
• The 2.05% tax paid by insurers on supplemental healthcare policy premiums introduced in 2026 would be extended to 2027
• Employee-savings and value-sharing payments would be counted when determining eligibility for general employer contribution relief, which would reduce the relief available to some employers. Currently only the PPV is counted
• The exemption from the employer-paid social levy (forfait social) on mandatory profit-sharing payments (participation) would apply to companies with fewer than 50 employees. Currently, the exemption applies to companies that provide such payments voluntarily, which can include companies benefiting from the five-year transition period after reaching 50 employees
• The ability for employees to “sell” unused RTT rest days (réduction du temps de travail) and the favorable employee and employer social security contribution treatment would be made permanent (currently due to expire at the end of 2026)

Employer implications

Employers should monitor the progress of both bills and consider the potential cost impact (especially for termination payments, PPV and employee-savings arrangements), reviewing any payroll, policy and communication measures that may be required. A few of the measures such as enhancements to PPV payments and the sale of RTT days offer more flexibility for employers and employees, but the government’s overall aim is to raise revenue and reduce the current social security deficit by half. The government estimates that the changes in the treatment of severance indemnities would affect only around 5% of the workforce; however, for those affected, the change in the tax treatment of severance from 2027 would be substantial.