The French government’s draft 2027 budget bills (the PLF and PLFSS) send a clear signal on termination payments: less exemption, more cost. Driven by the search for savings, the reform would significantly change how these payments are subject to taxes and social security contributions.
One cap to rule them all
Today, the exemption depends on the type of termination, and the most favorable cases can escape tax and contributions up to several PASS (the social security ceiling, which is EUR 48,060 in 2026). The reform replaces all of that with a single ceiling of one PASS. Above this threshold, termination payments are subject to both social contributions and income tax.
This new rule would apply to payments that are currently fully or partly exempt such as collective redundancies, court awards and the statutory tribunal settlement.
The 40% employer contribution on mutual termination agreements (“rupture conventionnelle”) would remain below the one-PASS line.
Impact on settlements and ongoing negotiations
The reform would expressly cover payments made under a court decision or a settlement agreement, including sums meant to compensate for a separate loss or injury. This would significantly narrow recent Supreme Court case law, which lets genuinely compensatory payments fall outside the usual exemption limits.
For higher-value packages, the effect is twofold: a heavier tax and social security burden, less in the employees’ pocket, and a higher overall cost for the company.
Application from 2027
On the latest version of the draft, the social security piece would apply to payments relating to terminations taking effect from 1 January 2027 (so not to the date the agreement is signed or the payment is made).
By contrast, the tax regime carry no specific effective-date rule for now, so the two regimes may follow different transitional rules.
If adopted as drafted, these measures would significantly change the financial treatment of certain terminations. Any negotiation, settlement or termination spanning 2026 and 2027 should be handled with these changes in mind.
