Tax classes
Tax classes in Luxembourg refer to a system that classifies people in different categories according to their personal and family situation, the main elements that influence belonging to one class or another are marital status, number of children and age. This classification then influences the determination of the tax burden.
There are currently three tax classes, class 1, class 1a and class 2. The following table illustrates how the assignment of the tax class is made according to the different parameters involved in its determination.
| Without dependent children | Withdependent children | > 64 years old | ||
| Single | 1 | 1A | 1A | |
| Both are residents or one is a resident and the other is a non-resident with tax assimilation.* | 2 | 2 | 2 | |
| Married | One is a resident and the other is a non-resident without tax assimilation. | 1 | 1A | 1A |
| Both are non-residents | 1 | 1 | 1 | |
| < 1 year | 1 | 1A | 1A | |
| Partnered | > 1 year, with common residence on all year, filing a joint tax return, and with tax assimilation if either or both are nonresidents. | 2 | 2 | 2 |
| < 3 years | 2 | 2 | 2 | |
| Divorced/separated | > 3 years | 1 | 1A | 1A |
| < 3 years | 2 | 2 | 2 | |
| Widowed | > 3 years | 1A | 1A | 1A |
*Tax assimilation: this 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
In order to determine the tax class of a person, the tax administration automatically assigns a tax class to each individual based on the data he provides when registering in the municipal registry. Thereafter, the tax class is updated every year and is determined based on the personal and marital status as of January 1 of each tax year.
Taxation by class
We will now see how these tax classes affect the tax calculation. In Luxembourg, taxes are based on a progressive income tax system, which means that the more you earn, the higher the percentage you pay in taxes. However, taxes are not calculated directly on income, they are calculated on a taxable base determined by the tax class.
The process for calculating taxes is then divided into 3 phases:
- 1st phase: determine the taxa class according to personal and family situation.
- 2nd phase: determine the taxable base according to income and the tax class
- 3rd phase: calculate the tax according to the taxable base.
For the last phase involving the calculation of the tax it is necessary to use the tax scale in force, which for 2024 is as follows:
| From EUR | To EUR | Tax rate (%) | Employment fund surcharge (%) | Effective tax rate (%) |
| - | 12,438 | 0% | 7 | 0.00 |
| 12,438 | 14,508 | 8% | 7 | 8.56 |
| 14,508 | 16,578 | 9% | 7 | 9.63 |
| 16,578 | 18,648 | 10% | 7 | 10.70 |
| 18,648 | 20,718 | 11% | 7 | 11.77 |
| 20,718 | 22,788 | 12% | 7 | 12.84 |
| 22,788 | 24,939 | 14% | 7 | 14.98 |
| 24,939 | 27,090 | 16% | 7 | 17.12 |
| 27,090 | 29,241 | 18% | 7 | 19.26 |
| 29,241 | 31,392 | 20% | 7 | 21.40 |
| 31,392 | 33,543 | 22% | 7 | 23.54 |
| 33,543 | 35,694 | 24% | 7 | 25.68 |
| 35,694 | 37,845 | 26% | 7 | 27.82 |
| 37,845 | 39,996 | 28% | 7 | 29.96 |
| 39,996 | 42,147 | 30% | 7 | 32.10 |
| 42,147 | 44,298 | 32% | 7 | 34.24 |
| 44,298 | 46,449 | 34% | 7 | 36.38 |
| 46,449 | 48,600 | 36% | 7 | 38.52 |
| 48,600 | 50,751 | 38% | 7 | 40.66 |
| 50,751 | 110,403 | 39% | 7 | 41.73 |
| 110,403 | 165,600 | 40% | 7 | 42.80 |
| 165,600 | 220,788 | 41% | 9 | 44.69 |
| 200,788 | - | 42% | 9 | 45.78 |
Tax class 1
In the tax class 1 in Luxembourg, the taxable base is equal to the taxable income, the tax rate is then applied to the entire income. The following example illustrates how the tax calculation would be for a person with an annual income of 20,000 euros:
| Rate | Taxable income | Tax according to scale | Employment fund surcharge |
| 0% | Income ≤ a 12,438 | 1438 * 0% = 0 | 1438 * 0% * 7% = 0 |
| 8% | Income between 12,438 and 14,508 | 2070 * 8% = 165.60 | 2070 * 8% * 7% = 11.59 |
| 9% | Income between 14,508 and 16,578 | 2070 * 9% = 186.30 | 2070 * 9% * 7% = 13.04 |
| 10% | Income between 16,578 and 18,648 | 2070 * 10% = 207.00 | 2070 * 10% * 7% = 14.49 |
| 11% | Income between 18,648 and 20,000 | 1352 * 11% = 148.72 | 1352 * 11% *7% = 10.41 |
| Total | 707.62 euros | 49.53 euros |
The total tax is then the sum of the tax according to the scale and the employment fund surcharge, both values rounded down previously, which is 756 euros.
Tax class 1a
In this class, the tax base is calculated by subtracting from the total income half of the difference between the total income and a reference threshold set by the state which currently stands at 49,752 euros. For a person with an income of 30,000 euros, the taxable base would then be equal to 30,000 - (30,000 - 49,752) /2, that is 20,124 euros. From here the tax is calculated in the same way as in the previous example:
| Rate | Taxable income | Tax according to scale | Employment fund surcharge |
| 0% | Income ≤ a 12,438 | 1438 * 0% = 0 | 1438 * 0% * 7% = 0 |
| 8% | Income between 12,438 and 14,508 | 2070 * 8% = 165.60 | 2070 * 8% * 7% = 11.59 |
| 9% | Income between 14,508 and 16,578 | 2070 * 9% = 186.30 | 2070 * 9% * 7% = 13.04 |
| 10% | Income between 16,578 and 18,648 | 2070 * 10% = 207.00 | 2070 * 10% * 7% = 14.49 |
| 11% | Income between 18,648 and 20,124 | 1476 * 11% = 162.36 | 1476 * 11% *7% = 11.37 |
| Total | 721.26 euros | 50.49 euros |
Adding both values rounded down gives the final tax of 771 euros. At this point it is worth noting how this class is much more favorable for people with not very high incomes, the person in this example obtained a very similar tax to the one in the previous example with an income 10,000 euros higher.
Tax class 2
In tax class 2 in Luxembourg, the taxable base is calculated by adding the income of the two persons and then dividing the result in half. In addition, with this class there is an additional step, the final tax must be multiplied by two. For a couple where one person has an income of 20,000 euros and another one of 40,000 euros the taxable base would then be: (20,000 + 30,000) / 2, that is 60,000 euros. Therefore, the tax would be calculated as follows:
| Rate | Taxable income | Tax according to scale | Employment fund surcharge |
| 0% | Income ≤ a 12,438 | 1438 * 0% = 0 | 1438 * 0% * 7% = 0 |
| 8% | Income between 12,438 and 14,508 | 2070 * 8% = 165.60 | 2070 * 8% * 7% = 11.59 |
| 9% | Income between 14,508 and 16,578 | 2070 * 9% = 186.30 | 2070 * 9% * 7% = 13.04 |
| 10% | Income between 16,578 and 18,648 | 2070 * 10% = 207.00 | 2070 * 10% * 7% = 14.49 |
| 11% | Income between 18,648 and 20,124 | 2070 * 11% = 227.70 | 2070 * 11% * 7% = 15.94 |
| 12% | Income between 20,124 and 22,788 | 2070 * 12% = 248.40 | 2070 * 12% * 7% = 17.39 |
| 14% | Income between 22,788 and 24,939 | 2,151 * 14% = 301.14 | 2,151 * 14% * 7% = 21.08 |
| 16% | Income between 24,939 and 27,090 | 2,151 * 16% = 344.16 | 2,151 * 16% * 7% = 24.09 |
| 18% | Income between 27,090 and 29,241 | 2,151 * 18% = 387.18 | 2,151 * 18% * 7% = 27.10 |
| 20% | Income between 29,241 and 30,000 | 759 * 20% =151.80 | 759 * 20% * 7% = 10.63 |
| Total | 2219.28 euros | 155.35 euros | |
| Total * 2 | 4438.56 euros | 310.70 euros |
Adding both values rounded down yields the final tax of 4,748 euros. This is less than the 5,730 euros they would have to pay in total if they were taxed separately: 756 euros for the person earning 20,000 and 4,974 for the person earning 40,000. This class mainly favors couples with disparate incomes, for couples with very similar incomes the tax would be practically the same.
Latest news and future changes
Since Class 1 significantly disadvantages single persons and single parents, there has been great pressure to change the system and establish a unified system. There have then been multiple debates in the Chamber of Deputies during which, the Minister of Finance, Gilles Roth, reiterated the Government's intention to carry out a reform during his term in office by presenting a reform bill for 2026 to introduce a single tax class.
Changes are therefore to be expected regarding the operation of tax classes in Luxembourg, so it is advisable to keep up to date with the news on this subject so as not to be caught by surprise.
