I have lived in both countries, and the topic of taxes often comes up. The goal of this article is to quantify and compare the employment taxes of the two countries. I’m writing this mostly as a reference for myself, maybe other people will find it interesting as well.
Glossary
Employer payroll taxes: Taxes that employers pay on the employee’s gross income. In the US they are a flat 8.25% (6.2% for Social Security, 1.45% for Medicare and 0.6% for Federal unemployment tax aka FUTA). In France they are called “cotisations patronales”. The calculation is more complicated and involves ~20 sub-items, they are approximately 30%.
Employee payroll taxes: Taxes that employees pay on their gross income. In the US they are also a flat 8.25%, similar to the Employer payroll taxes. In France they are called “cotisations sociales” and are around 10-20%.
Total employment cost: the total amount an employers pays, including the gross income of the employee + employer payroll taxes
Gross income: the amount an employee receives before taxes are taken out
Net income: the amount an employee receives after taxes are taken out. In french, net income refers to the amount after employee payroll taxes but before income taxes. For the purpose of this article we are going to use this definition.
Net income after income tax: the amount an employee receives after taxes, including income tax, are taken out
Net income ratio = Net income after income tax / Total employment cost.
It is a measure of how much the employee gets from what the employer spends after all
- Employer payroll taxes
- Employee payroll taxes
- Income tax
Methodology
In this comparison we will use the P10 (bottom 10%), P50 (median) and P90 (top 10%) annual income for both countries in order to have a proxy for low, medium and high incomes. In order to get these numbers, I used the 2021 (most recent) numbers from the OECD’s website: https://stats.oecd.org/Index.aspx?DataSetCode=IDD
In the US, income tax is not the same in all states so we will compare France with two US states: Florida which has no state income tax, and New-York which has the highest state income tax rate.
In order to calculate Total employment cost, Net income and Net income after income tax from Gross income on the french side, I used an online calculator from the URSSAF’s website: https://www.urssaf.fr/portail/home/utile-et-pratique/estimateur-de-cotisations.html
In order to calculate Net income and Net income after income tax from Gross income on the US side, I used this SmartAsset website https://smartasset.com/taxes/paycheck-calculator
In order to calculate Total employment cost from Gross income on the US side, I used this Gusto website: https://gusto.com/resources/calculators/employer-tax-calculator
Results
Notes
- We are only comparing income without any auxiliary benefits like health insurance, tax advantaged accounts, stipends, etc… We are also not taking cost of living into consideration.
- Net income ratio is lower in France compared to the US, and the difference increases as income increases.
- That being said, we have to take the difference with a grain of salt because of the different social systems. France’s higher taxes fund more things like free education, free healthcare, retirement, etc…
- Overall I’m pretty surprised by the results, especially for higher incomes: when writing this, I was expecting the difference in Net income ratio to be much larger.
- In the end, comparing the two systems comes down to how much you value a ~15-20% difference in Net income ratio compared to more expansive social benefits.
