What Are Luxembourg’s Income Tax Rates?

Luxembourg is a financial center in Europe, attracting professionals and investors from across the globe. Its personal income tax system is structured to accommodate a diverse population of residents and cross-border workers.

Determining Your Tax Class

Luxembourg’s personal income tax system classifies taxpayers into one of three categories, which impacts how their income is taxed. This classification is based on an individual’s personal and family situation as of January 1st of the tax year. The tax administration automatically assigns a class based on information provided during municipal registration.

Tax Class 1 is the default category for single individuals. This class also includes divorced or separated persons, those in a civil partnership (PACS) who do not opt for joint taxation, and married taxpayers who choose separate taxation.

Tax Class 1a is designated for specific single or widowed individuals. This includes single parents with dependent children and individuals who are at least 65 years old at the start of the tax year.

Tax Class 2 is the most advantageous and applies to married couples who file a joint tax return. It is also available to partners in a civil partnership (PACS) who elect for joint taxation. For a period of three years following the event, this class can also include widowed individuals and those who are divorced or legally separated.

Calculating Taxable Income

To calculate taxable income, an individual must aggregate all income from sources like employment, self-employment, pensions, investments, and rental income. From this total gross income, taxpayers can subtract certain expenses to arrive at their adjusted taxable income.

Deductions are available for professional expenses, known as Frais d’obtention. Employees are entitled to a minimum standard deduction of €540 for these job-related costs, which doubles if a jointly-taxed spouse is also employed. If actual work-related expenses exceed this standard amount, the higher actual cost can be deducted.

Reductions are also available for “special expenses” (Dépenses spéciales). These include mandatory social security contributions, premiums for life and health insurance, and interest on personal loans, up to a base limit of €672 that increases for a spouse and children. Contributions to a qualifying private pension scheme are deductible up to €3,200 per spouse. Taxpayers may also deduct extraordinary charges (Charges extraordinaires) for costs related to sickness or supporting parents, provided these expenses surpass a certain percentage of their income.

Applying the Progressive Tax Rates

Luxembourg employs a progressive tax rate system, meaning the rate of tax increases as income rises. The system has 23 tax brackets, with rates for the 2025 tax year ranging from 0% to 42%. For taxpayers in Class 1, the first €13,230 of income is tax-free, with rates then beginning at 8% and increasing to a top rate of 42% on income exceeding €234,870.

A mandatory solidarity surcharge, which contributes to the employment fund, is added to the initial tax amount. The standard rate for this surcharge is 7%. This rate increases to 9% for those in Tax Class 1 and 1a with taxable income over €150,000, or for those in Tax Class 2 with income over €300,000.

For example, a Class 1 taxpayer with an €80,000 income would first calculate their tax using the progressive brackets. The 7% solidarity surcharge is then calculated on that tax amount and added to it to determine the total liability.

Social Security Contributions

Separate from income tax, individuals employed in Luxembourg must make mandatory social security contributions. These payments are calculated on gross salary, withheld by the employer, and fund the nation’s health, pension, and long-term care insurance systems.

Employee contributions for pension insurance are set at 8% of gross remuneration, and the rate for sickness insurance is 2.80%. Both contributions are subject to an annual income ceiling of €162,224.16 for 2025.

A dependency contribution for long-term care insurance is also required. This is levied at 1.4% on gross professional income after a standard annual abatement of €8,111.16 for 2025. Unlike the other contributions, the dependency contribution is not capped by the annual income ceiling.

Filing and Payment Procedures

Filing a tax return (Form 100) is mandatory depending on income levels and sources. For residents, filing is required if taxable income exceeds €100,000. It is also required for those with multiple income sources if their combined income is over €36,000 for Tax Class 1 and 2.

The deadline to submit the annual tax return is December 31st of the following year. Taxpayers can file a paper form or file electronically through the MyGuichet.lu portal.

Most employees pay income tax throughout the year via a Pay-As-You-Earn (PAYE) system, where employers deduct tax from monthly salaries based on the employee’s tax class. The annual tax return reconciles the tax withheld with the final liability, which may result in a refund or an additional payment.