How to determine your tax class in Luxembourg
In this article, we will cover the different classes and criteria to determine your tax class in Luxembourg. Whether you are an employee, self-employed, or a business owner, understanding your tax class will help you to make informed decisions about your finances and ensure that you comply with local tax laws.
If you are a resident of Luxembourg or planning to move to the country, to manage your finances you will need to understand your tax class. Luxembourg has a unique tax system with different tax classes, each with its own set of rules and rates. Determining your tax class correctly is crucial, as it can have a significant impact on the amount of tax you pay and affect your eligibility for the tax benefits to which you are entitled.
Distinctive features of tax classes
The tax classes in Luxembourg are assigned based on your family situation and income. The tax administration will automatically assign you to a tax class based on the information you provide when you register with the local authorities. They will look at your income, marital status, the number of children you have, and your age (if you are older than 64 years old).
Currently, there are three tax classes in Luxembourg — 1, 1A, and 2:
Tax class 1
Tax class 1A
Tax class 2
Your tax class is determined by your personal and marital status on January 1 of each fiscal year. If your situation changes during the tax year, the class may be adjusted accordingly. For example, if you get married, you have a child, or your income changes significantly, you may be re-assigned to a different tax class.
Determining your tax class in Luxembourg
So far tax class system seems quite simple, however, there are many details to consider, such as marriages between residents and non-residents and the effect of tax assimilation.
The following chart shows a more detailed panorama for the class determination considering the differences between residents (marked as R) and non-residents (marked as NR), and the effect of the tax assimilation (marked as TA). Tax assimilation refers to the possibility for non-residents to be treated as tax residents if at least 90% of their total worldwide income is taxed in Luxembourg.
Without children | With children | > 64 years old | ||
Single | 1 | 1A | 1A | |
Married | R + R or NR with TA | 2 | 2 | 2 |
Married | R + NR without TA | 1 | 1A | 1A |
Married | NR + NR | 1 | 1 | 1 |
Partnered | < 1 year | 1 | 1A | 1A |
Partnered | > 1 year* | 2 | 2 | 2 |
Divorced/ separated | < 3 years | 2 | 2 | 2 |
Divorced/ separated | > 3 years | 1 | 1A | 1A |
Widowed | < 3 years | 2 | 2 | 2 |
Widowed | > 3 years | 1A | 1A | 1A |
* When living in a common residence all year long, filing a joint tax return, and with tax assimilation when either one or both are nonresidents.
You can see a more detailed version on the Luxembourg tax administration website. Make sure to pay attention to differences if you are taxed as married non-residents for tax years prior to 2017 and for the tax year of 2017: you will be allocated different tax classes, than usual, depending on the situation, i.e. the percentage of the professional income of the household and family circumstances.
If you are unsure about your tax class or if you think you may be eligible for a different tax class, you should consult with a tax professional or contact the Luxembourg tax administration to get more information or request a class change. Contacts for Luxembourg tax administration for individuals are divided by communes: find your local tax office on the official website.
For this reason, there has recently been a petition to review the tax classes that have piled up 5,500 signatures, which is more than the 4,500 signatures needed for a debate in the Chamber of Deputies.
Subscribe to our Telegram news channel so you don't miss updates on tax classes.
Taxation of different classes
The amount of taxes to pay is based on a progressive income tax system, which means that the more you earn, the higher the percentage you will pay in taxes. However, your taxes are not calculated directly on your income, this is where the classes come into play. They serve to determine the value on which your taxes will be calculated according to your class and your income.
From EUR | To EUR | Tax rate (%) | Employment fund surcharge (%) | Effective tax rate (%) |
0 | 12,438 | 0 | 7 | 0 |
12,439 | 14,508 | 8 | 7 | 8.56 |
14,509 | 16,578 | 9 | 7 | 9.63 |
16,579 | 18,648 | 10 | 7 | 10.70 |
18,649 | 20,718 | 11 | 7 | 11.77 |
20,719 | 22,788 | 12 | 7 | 12.84 |
22,789 | 24,939 | 14 | 7 | 14.98 |
24,940 | 27,090 | 16 | 7 | 17.12 |
27,091 | 29,241 | 18 | 7 | 19.26 |
29,242 | 31,392 | 20 | 7 | 21.40 |
31,393 | 33,543 | 22 | 7 | 23.54 |
33,544 | 35,694 | 24 | 7 | 25.68 |
35,695 | 37,845 | 26 | 7 | 27.82 |
37,846 | 39,996 | 28 | 7 | 29.96 |
39,997 | 42,147 | 30 | 7 | 32.10 |
42,148 | 44,298 | 32 | 7 | 34.24 |
44,299 | 46,449 | 34 | 7 | 36.38 |
46,450 | 48,600 | 36 | 7 | 38.52 |
48,601 | 50,751 | 38 | 7 | 40.66 |
50,752 | 110,403 | 39 | 7 | 41.73 |
110,404 | 165,600 | 40 | 7 | 42.80 |
165,601 | 220,788 | 41 | 9 | 44.69 |
Over 220,788 | 42 | 9 | 45.78 |
Once you have determined the base on which your taxes will be calculated, you can calculate the value of your taxes using the tax progressive rates.
To use that table, you must consider that the tax is calculated progressively. This means that if for example, you have an annual income of 16,000 euros, although the percentage that corresponds according to the table is 9%, this percentage is not applied to the totality of the 16,000 euros but is applied only to the range of income that falls in this level.
To make things easier, the administration has a page that allows you to automatically calculate taxes based on a given income.
It is still important to understand how the calculation process works. In the following sections, we will show examples of how the calculation is performed for each of the classes but it's worth noting two points about the calculations in our examples:
The calculation made by the government page
This calculation only considers the basic income tax
Tax class in Luxembourg only affects the calculation of income tax. Other taxes, such as value-added tax (VAT) and property tax do not depend on the tax class of the individual.
Class 1 tax amount
With this class, the tax rate applies to your entire income.
If your annual income is 20,000 euros and you have class 1, your taxes will be calculated based on your entire income as follows:
- 0% on the first 12,438 euros
- 8.56% on the next 2,069 euros (12,439 – 14,508)
- 9.63% on the next 2,069 euros (14,509 – 16,578)
- 10.70% on the next 2,069 euros (16,579 – 18,648)
- 11.77% on the next 1,351 euros (18,649– 20,000)
To calculate the tax due on each amount, we multiply it by the corresponding tax rate:
- 2,069 euros x 8.56% = 177.10 euros
- 2,069 euros x 9.63% = 199.24 euros
- 2,069 euros x 10.70% = 221.38 euros
- 1,351 euros x 11.77% = 159.01 euros
Class 1A tax amount
This class applies to widowed individuals not included in Class 2 (so, less than 3 years), people aged 65 or older on January 1st of the fiscal year, and single parents with a child living in their household.
Let's say your total taxable income is 80,000 euros. First, you need to subtract half the difference between your income and 49,752 euros from your total taxable income. This essentially reduces your taxable income by an amount that increases as your income gets closer to the bracket.
Then we apply the progressive tax rates to your adjusted taxable income according to the following brackets:
- Income below 41,814 euros: 0% tax rate (assuming no tax on income below this threshold)
- Income between 41,814 and 110,403 euros: 39% tax rate
- Income between 110,403 and 165,600 euros: 40% tax rate
- Income between 165,600 and 220,788 euros: 41% tax rate
- Income exceeding 220,788 euros: 42% tax rate
We calculate the adjusted taxable income as follows: 80,000 - (1/2 * (80,000 - 49,752)) = 65,126 euros. Then apply the tax rate of 39%.
Solidarity tax in Luxemoburg
Don't forget that a solidarity tax is added on top of the income tax you calculate. The solidarity tax rate is 7% for taxable incomes below €150,000 in Class 1a and increases to 9% for income exceeding €150,000.
Class 2 tax amount
Taxes for this class are based on half the combined household income, and the amount is multiplied by 2 at the end.
Let's say a married couple has a combined taxable income of 60,000 euros. Since they are in Class 2, their taxable income will be divided by two, which gives us 30,000 euros.
According to the tax rates, the tax for this income level is 2,792 euros.
PACS and tax classes in Luxembourg
A domestic partnership or PACS (Civil Solidarity Pact) is a legal recognition of domestic arrangements between two people who have chosen to live together without getting married. This partnership provides legal security in civil matters, tax matters, and social security.
The PACS is a civil contract that can be entered into by two people of different or the same sex who live together and declare their official partnership before the civil registrar. Once the PACS is registered, partners benefit from tax deductions and social protection, as well as rules of solidarity and responsibility between partners.
Tax implications of the PACS
When it comes to tax implications for civil partners in Luxembourg, there are two options: joint or separate taxation. Partners can file the joint Form 100 income tax return but only if the PACS has existed for the entire tax year and they have shared a common home or residence for the same period.
Joint taxation
Separate taxation
Frequently Asked Questions (FAQ)
What are the different tax classes in Luxembourg
What is the difference between tax class 1 and tax class 2 in Luxembourg
What are the tax implications of being in a domestic partnership or PACS
Can non-residents be assigned a tax class in Luxembourg
Source: impotsdirects.public.lu, impotsdirects.public.lu, impotsdirects.public.lu, guichet.public.lu, guichet.public.lu, guichet.public.lu
We took photos from these sources: Kelly Sikkema for Unsplash