Income tax

What the withholding tax actually is

For a resident employee, income tax in Luxembourg is not something you settle once a year and pay from your own pocket. Your employer withholds it from every payslip — the retenue d’impôt sur les traitements et salaires, or RTS — and hands it to the tax administration (Administration des contributions directes) on your behalf. What reaches your account is already after tax. This page explains how that monthly figure is built, and why two people earning the same gross can be taxed quite differently.

The tax is not charged on your gross pay. It is charged on your taxable income — the gross reduced by the deductible social contributions and by two standard lump-sum allowances: the flat business-expense allowance (frais d’obtention forfaitaires, 540,00 € a year) and the flat special-expense allowance (dépenses spéciales forfaitaires, 480,00 € a year). Only what remains after those deductions is fed into the tariff.

The base tariff — 23 marginal bands

The heart of the system is the tarif de base: a progressive schedule of 23marginal bands running from 8 % up to a top marginal rate of 42 %. Marginal means each band’s rate applies only to the slice of income that falls inside it, not to the whole — so a raise never leaves you worse off. The first slice, up to 13 230,00 €, is the tranche exemptée: income inside it carries no tax at all. Above it the first taxed band starts at 8 %, and the rate climbs step by step through the middle bands and flattens out at the top. Because the calculator works from a monthly gross, it annualises your taxable income, runs it through this schedule, and divides the result back down to a month. This schedule is the tarif de base published by the tax administration (Administration des contributions directes) and gazetted in the Mémorial A, applicable from the 2025 tax year; with no separate 2026 schedule enacted, it is also the one that applies in 2026.

The tax class changes everything

The single most important input is not the amount — it is your tax class (classe d’impôt). The same base tariff is applied through one of three methods, and the choice can move your net pay by a wide margin.

Class 1 is the default for a single person without children: the base tariff is applied directly to the taxable income. Class 2 is for married couples and registered partners taxed jointly, and it uses income-splitting — the household’s income is halved, the tariff is applied to that half, and the result is doubled. Because the tariff is progressive, splitting pulls the household into lower marginal bands, which is why a class-2 employee typically keeps more of the same gross than a class-1 one. Class 1a sits in between: it is for single parents, the recently widowed and people aged 65 and over, and it applies an attenuated tariff that eases the burden on lower and middle incomes and gradually converges towards class 1 as income rises, the attenuation disappearing above 79 380,00 € — the threshold at which class 1a rejoins class 1.

An honest note on class 1a: its formula is an approximation, not yet confirmed against the tax administration’s official online calculator to the cent. Classes 1 and 2 are modelled exactly; class 1a is flagged in the calculator and is being verified. We would rather tell you that than quietly present an unconfirmed number.

Solidarity surcharge, and the employee tax credit

Two more pieces complete the monthly figure. First, the solidarity surcharge (impôt de solidarité, for the employment fund): a further 7 % charged on the income tax itself. It is not shown as a separate line on the payslip — the official withholding tables already fold it into the tariff, so the calculator does the same. On very high incomes the surcharge rises to 9 %, but for a typical monthly salary the flat 7 % applies. Second, the employee tax credit (crédit d’impôt salarié, CIS): up to 600,00 € a year, it reduces the tax withheld rather than the taxable base, and it tapers away at higher salaries. From tax year 2026 a second credit is added alongside it, the CO2 tax credit (crédit d’impôt CO2, CI-CO2), up to 216,00 € a year, applied to the withholding the same way. Both are applied after the tariff, as a direct reduction of the monthly withholding.

Put together, the monthly chain is: gross, minus deductible contributions and the standard allowances, gives the taxable base; the tariff is applied by tax class; the solidarity surcharge is folded in; and the employee tax credit is subtracted. That is the RTS. One thing it deliberately does not do is levy any church tax — Luxembourg charges none on salary.

Because this is the monthly withholding, it is a close estimate rather than a final bill. The annual assessment (décompte annuel, form 163, or a full return, form 100) reconciles any credits and deductions that were not on your payslips — additional expenses, a mid-year job change, a second earner — and can lead to a refund or a top-up. Every rate and amount above is the one in force for 2026, pending reviewer sign-off.

The full content of this page is still in preparation and subject to review.