A credit is refunded, a reduction evaporates

The Vallois family spends 5 200 € on domestic help and gives 1 000 € to charities. Both open a tax advantage. But if their tax falls to zero, they collect 2 600 € on the first and lose 714 € on the second. Before you read on: what separates the two mechanisms?

Two words, two opposite mechanics

Tax vocabulary distinguishes two schemes that everyday use conflates. A tax reduction is set against the tax due and stops there: if the tax is nil it produces nothing, and the taxpayer receives no payment at all.

A tax credit is also set against the tax due, but with one decisive difference. Where it exceeds the tax, the excess is refunded: a household with no tax liability receives a transfer from the Treasury.

The consequence is direct for a modest household. A tax credit yields its full amount; a reduction yields only what the tax can absorb, and nothing beyond that.

The order of set-off matters too. Credits apply after reductions: that is why a lost reduction is never recovered against an available credit, the two do not offset each other.

Domestic help, 50 % inside a moving envelope

Article 199 sexdecies of the tax code provides a credit equal to 50 % of expenses borne during the year for personal services supplied at the taxpayer's residence.

The spending ceiling is 12 000 € in the ordinary case, which bounds the advantage at 6 000 €. That ceiling rises by 1 500 € per dependent child or per household member over sixty-five.

The increases do not run without end: the increased ceiling cannot exceed 15 000 €. A household with two children therefore reaches exactly that ceiling, and a third child adds nothing further.

Two derogations widen the envelope. In the first year of directly employing someone, the ceiling rises to 15 000 €, and to 18 000 € with increases. Where disability is recognised, it reaches 20 000 €.

Three sub-ceilings inside the ceiling

Some services are bounded separately, inside the overall envelope and not on top of it. Minor DIY is taken up to 500 € a year, computer assistance up to 3 000 €, minor gardening work up to 5 000 €.

These sub-ceilings do not add to the general ceiling: they carve it up. Spending 6 000 € on gardening out of a 12 000 € envelope brings only 5 000 € into account, and the remaining 1 000 € is lost for the advantage.

Minor DIY carries a further limit, on duration: the service must not exceed two hours. Beyond that it leaves the category and no longer falls under the scheme, whatever the amount.

One last point finishes making the advantage less simple than advertised. Aid received to fund the service — allowances, an employer's contribution — is deducted from the declared spending before the rate is applied.

The January advance, and the summer reckoning

Payment does not wait for the tax assessment. An advance of 60 % of the previous year's credit is paid in January, the balance following in the summer once actual spending has been declared.

That mechanism protects the household's cash flow but creates a symmetrical trap. In a year when spending falls, the January advance exceeds the real credit, and the administration reclaims the difference in the summer.

A household that stops employing someone therefore has an interest in telling the administration before January, rather than collecting an advance it will have to return. The step is declarative and free.