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Withholding at source
Income tax on salaries is withheld at source. Your employer calculates it using your tax class and the information held by the tax administration, the Administration des contributions directes (ACD), and pays it directly. What arrives in your bank account is net of tax and social security contributions.
The information your employer uses comes from your tax card (fiche de retenue d'impôt), which is issued electronically by the ACD once you are registered. Check it: an incorrect tax class means incorrect withholding all year.
The three tax classes
Luxembourg currently has three tax classes. According to the current rules:
- Class 1: single people without dependants.
- Class 1a: single parents and certain other situations, including some widowed and older taxpayers.
- Class 2: married couples and registered partners taxed jointly.
Class 2 applies a splitting mechanism to the couple's combined income, which usually lowers the tax bill, particularly when one partner earns much more than the other. Registered partners generally need to request joint taxation.
Newly married or registered? Tell the tax administration and update your tax card. Staying in class 1 when you are entitled to class 2 means overpaying tax until you file a return.
Do you need to file a return?
Many employees with a single salary and no other income are not obliged to file a tax return; the withholding is final. But there are good reasons to file one anyway, and some situations make it compulsory.
- Filing is often worth it if you have deductible expenses: interest on a mortgage for your home, certain insurance premiums, contributions to a pension savings plan, childcare costs, or charitable donations.
- Filing is usually compulsory when there are several incomes, income above certain thresholds, or other types of income such as rental income.
Returns can be filed online through MyGuichet. Deadlines and forms are published by the ACD each year.
What you can typically deduct
The list is long and technical, but the items most relevant to newcomers include:
- Interest on a loan for your principal residence, within annual ceilings.
- Premiums for certain insurance contracts and contributions to recognised pension savings.
- Childcare expenses, within limits.
- Travel expenses between home and work are handled through a flat-rate deduction based on distance.
If you are buying a home, the tax treatment of your loan is one more reason to read our guides to the buying process and mortgages.
Cross-border workers
Non-residents who work in Luxembourg are generally taxed in Luxembourg on their Luxembourg salary. Some can opt to be treated as residents for tax purposes if most of their household income is earned in Luxembourg. The rules for working days outside the country also matter: the tax tolerance for residents of France, Belgium and Germany is currently 34 days a year. See our guide to living in the city or across the border.
The 2028 reform: a single tax class
The government has presented bill no. 8676, published in January 2026, to replace the three classes with a single tax class, "U", from 1 January 2028. According to analyses of the bill:
- new taxpayers and those currently in classes 1 and 1a would move to class U in 2028;
- couples currently in class 2 could keep their current treatment during a long transition period of up to 25 years, with the option to switch to class U;
- most taxpayers are expected to pay less tax under the new scale, although some couples with one main earner could pay more.
At the time of writing, the bill is going through the legislative process. We will update this guide when it is adopted.
Practical checklist for your first year
- Register with your commune. It triggers much of the administrative system. See our guide to registering with your commune.
- Check your tax card and your tax class as soon as it is issued.
- Keep records of deductible expenses from day one: loan statements, insurance certificates, childcare invoices.
- Create a MyGuichet account for online procedures.
- Consider a tax adviser for your first return, particularly if your situation involves a spouse abroad, income in several countries, or a property purchase.
Questions we are often asked
I arrived in the middle of the year. Will I pay too much tax?
Possibly, because withholding assumes a full year of income. Filing a return for your first year often corrects this and can produce a refund. It is one of the most common reasons newcomers file even when they are not obliged to.
My spouse is still abroad. Which class do I get?
It depends on your situation and on international tax rules. Married taxpayers with a spouse abroad can sometimes obtain class 2 under specific conditions. This is exactly the kind of situation where a tax adviser pays for themselves.
Do I pay tax on rental income from a flat I own abroad?
Tax treaties between Luxembourg and other countries decide where such income is taxed. It usually has to be declared, even when it is taxed elsewhere.
Our take
Luxembourg's income tax is simpler to live with than to explain. For most employees, the key decisions are few: the right tax class, and whether a return would recover money through deductions. Getting those right in the first year avoids paying more than necessary, and the planned 2028 reform will change the landscape for new arrivals.
For the other steps of your first months, see our guide to moving to Luxembourg: the first ninety days.
Sources
This article gives general practical information and is not legal or tax advice. Procedures, amounts and deadlines change; check the current rules on guichet.lu or with the administration concerned.
