Income tax - Termination benefits, dismissal, retirement

Verified 01 January 2026 - Public Service / Directorate of Legal and Administrative Information (Prime Minister)

Income tax: 2026 income tax return for 2025

This page is up to date at 1er January 2026.

However, forms, online services and information materials are not yet available for the 2026 tax year of the 2025 tax return. They will be put online as soon as they are available.

In addition, the draft budget law for 2026 could not be promulgated before 1er January 2026.

The law n°2025-1316 of 26 december 2025 The Special Authorizes the Government to Collect Taxes, Without Modifying the Scales, Until the Adoption of a Budget Law for 2026.

If the Finance Law for 2026 changes the rules presented on this page, the content will be updated after the publication of the Finance Law in the Official Journal.

Did you receive an amount at the end of an employment contract? It is subject to income tax regardless of its origin (resignation, dismissal, retirement, etc.). However, an exemption is possible in certain cases. We tell you what you need to know.

The following amounts collected at the end of an employment contract are always taxable :

  • Allowances for breach of employment contract (compensatory allowances for notice, paid leave, non-compete allowance)
  • Allowances for end of contract or assignment (termination indemnity) precariousness premium paid at the end of a fixed-term contract, compensation paid in the event of an early termination of a fixed-term contract at the initiative of the employer, allowance for the end of an acting assignment, etc.).

Please note

For the taxation of your benefits, you can apply to benefit from the quotient system, if this exceptional income exceeds the average of your taxable income for the previous 3 years.

The severance payments are in part exempt of income tax.

In some cases, the exemption is total.

Limited exemption from severance pay

The compensation paid in the event of dismissal (outside job protection plan) is partly exempt of income tax.

The amount corresponding to compensation set by law or collective agreement is fully exempt.

If you have received a higher amount, the exemption shall be limited to one of the following amounts:

  • 2 times the amount of gross compensation you received in the year preceding your dismissal
  • Half of the severance pay you received.

The tax authorities will choose the solution that is most favorable to you.

In this case, the exemption shall be limited to a maximum of €282,600 for allowances received in 2025 (€288,360 for allowances paid in 2026).

Example :

An employee receives a severance payment of €120,000 of which €70,000 is equal to the compensation provided for in its collective agreement. His gross remuneration for the calendar year preceding the dismissal is €40,000.

The severance pay is exempt up to the amount provided for in the collective agreement, i.e. €70,000.

This amount is greater than 50% of the compensation received (€120,000/2 = €60,000) but less than twice the annual gross remuneration, equal to €80,000 (€40,000 x2).

The compensation is therefore exempt up to the sum of €80,000.

The surplus of €40 000 (€120 000 - €80,000) is taxable.

The compensation of conventional rupture is exempt under the same conditions, if you are not entitled to receive a retirement pension from the statutory scheme.

Full exemption from severance pay

The severance pay is tax-free in full in the following cases:

  • Compensation received as part of a social plan (called a job protection plan) PES)
  • Compensation and damages awarded by the judge in the event of unjustified or irregular dismissal (abusive termination, procedure not respected)
  • Special severance pay due in the event of termination in connection with an accident at work or an occupational disease
  • Compensation for termination of employment, including on discriminatory grounds
  • Compensation paid in the context of a collective agreement breakdown
  • Compensation paid on termination of contract at the end of a mobility leave.

Please note

If the contract is subsequently annulled (in particular following a court decision), the compensation received remains tax-free.

Your retirement or early retirement benefit is taxable. However, a total or partial exemption is possible in certain cases.

Voluntary retirement or early retirement

The allowance paid in the event of voluntary retirement or early retirement shall be taxable in full.

Retirement at the initiative of the employer

Compensation paid in the event of retirement (excluding job protection plan) is partly exempt of income tax.

The amount corresponding to compensation set by law or collective agreement is fully exempt.

If you have received a higher amount, the exemption shall be limited to one of the following amounts:

  • 2 times the amount of gross compensation you received in the year preceding your dismissal
  • Half of the retirement benefit you received.

The tax authorities will choose the solution that is most favorable to you.

Warning  

The exemption shall be limited to a maximum of €235,500 for retirement benefits received in 2025 (€240,300 for retirement benefits received in 2026).

Severance pay fully exempt

Retirement or early retirement benefits are fully exempt in the following cases:

  • Compensation received in connection with a social plan (job protection plan, says PSE)
  • Allowance for early termination of activity perceived under the scheme early retirement asbestos
  • Compensation received in the context of early retirement and dismissal from the National Labor Fund (FNE) at the time of departure from the company, under the same conditions as the severance pay.

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