Tax classes in Luxembourg: 2026 scale and the class U

What are the tax classes in Luxembourg?

Tax classes in Luxembourg are three, class 1, class 1a and class 2, and they do not change the scale itself: they govern how it is applied to adjusted taxable income, so that the gap in tax between two taxpayers on an identical income comes from that allocation alone.

The split comes from article 119 of the income tax law. Class 1 covers persons who belong to neither class 1a nor class 2. Class 1a covers, failing class 2, widows and widowers, persons who benefit from a tax relief for children, and persons who have completed their sixty-fourth year at the beginning of the tax year. Class 2 covers spouses and partners taxed collectively.

Three practical remarks sit behind that list. The first is that class 1a does not reward a family situation as such: a widowed taxpayer is placed there irrespective of age and of the presence of children, once the transitional period has run. The second is that widowhood keeps class 2 for the three years following the spouse's death, and class 1a only takes over afterwards. The third is that the class is carried on the tax withholding form: an error on the class feeds through month after month into the withholding operated by the employer, long before it shows up in the personal income tax return.

We regularly see the same error in our files: a withholding form left in class 2 after a divorce or a de facto separation, or left in class 1 after the birth of a child opening a tax relief. The annual adjustment or the assessment eventually restores the calculation, but the taxpayer will have advanced or withheld cash for twelve months for nothing. The useful reflex is to re-read the class shown on the form at every change of civil status, household or residence, rather than when the assessment notice arrives.

How is the Luxembourg income tax scale read in 2026?

The Luxembourg income tax scale applicable in 2026 is still the one published by the Direct Tax Administration from tax year 2025: a band exempt up to EUR 13,230, then steps up to 42% above EUR 234,870 of adjusted taxable income. Entry into the scale is at 8%, and 42% is the top marginal rate before the surcharge.

The structure is worth reading in three movements, because it is not uniform. The first five taxed bands, from 8% to 12%, rise by one point per step of EUR 2,205. From EUR 24,255, the steps move to two points for EUR 2,295, which sharply steepens the slope across middle incomes. Then progressivity stops: the 39% band alone covers the range from EUR 54,090 to EUR 117,450, that is more than EUR 63,000 of income at the same marginal rate.

That wide 39% band explains most computation surprises. A class 1 taxpayer reaches a 39% marginal rate at EUR 54,090 of adjusted taxable income and keeps it up to EUR 117,450. Inside that zone, a bonus, a capital gain or additional rental income bears 39% before the surcharge, whether it is the first or the sixtieth thousand euros crossed. The three upper bands, 40%, 41% and 42%, only resume the progression one point at a time.

One point of vocabulary avoids a frequent error. The scale applies to adjusted taxable income, that is after deductions, allowances and special expenses, and not to gross pay. Between the gross figure carried on the payslip and the base of the scale sit social contributions, business expenses, debit interest, deductible insurance premiums and family charges. Reading the scale against an annual gross systematically overstates the tax.

Class 2 and class 1a: what the computation method changes

Class 2 in Luxembourg applies splitting: the tax due equals twice the tax which, under the class 1 tariff, corresponds to half of the adjusted taxable income. The scale is therefore run across a base divided by two, which keeps the household in lower bands.

The Direct Tax Administration publishes the worked example that makes the mechanism legible. On an adjusted taxable income of EUR 100,000 for tax year 2025, the class 1 tax corresponding to half of that income, EUR 50,000, is EUR 7,341; the class 2 tax is therefore EUR 7,341 multiplied by two, that is EUR 14,682. The same income taxed in class 1 bears appreciably more tax, because the whole base then crosses the upper bands of the scale.

Class 1a holds an intermediate position that often disappoints the taxpayers concerned. It does open an exempted band of EUR 26,460, like class 2, but splitting there is not full: the benefit is capped, so the tax burden moves progressively closer to class 1 as income rises. A single parent or a taxpayer over 64 should therefore not reason like a collectively taxed couple: the gap with class 1 is real on modest and middle incomes, and it closes on high incomes.

Two practical consequences follow for the files we handle. First, the choice between collective and individual taxation of spouses is not decided on principle but on the figure, because the gap depends on how income is spread between the two spouses. Second, a person reaching 64 at the beginning of a tax year changes class with no step to take, which interacts with the allowance for staying in professional life where the activity continues beyond that age.

The employment fund surcharge: 7% or 9% depending on the class

Income tax established under the scale is increased in Luxembourg by an employment fund contribution of 7%, raised to 9% above an adjusted taxable income of EUR 150,000 in tax classes 1 and 1a, or of EUR 300,000 in tax class 2. That rate has been in force since tax year 2013.

The mechanics matter because the tax amounts in the published scales do not include that surcharge: the tax is established in two steps, the tariff first, the surcharge afterwards. A marginal rate read at 42% in the scale therefore corresponds to 45.78% once the 9% surcharge is applied, and a marginal rate of 39% corresponds to 41.73% with the 7% surcharge. It is that second figure which actually measures the cost of the next euro of income.

The doubled threshold in class 2 is one of the few favours a move to a single class would call into question, and it deserves to be spotted in files with two high incomes. A collectively taxed couple stays at 7% up to EUR 300,000 of adjusted taxable income, where two single taxpayers each cross the 9% threshold at EUR 150,000. For directors whose remuneration combines with participation income, that boundary is checked before any arbitrage between salary and distribution, a question we work through with the tax adviser on the file.

Tax classes for non-residents: the 90% threshold

Tax classes for non-resident taxpayers in Luxembourg depend on tax assimilation: a non-resident at least 90% of whose worldwide income is taxable in Luxembourg may, on request, be assimilated to a resident, which opens access to class 2. The class 2 rules, splitting included, then apply as they do to a resident.

The 90% threshold is not a quality acquired once and for all. It is determined annually, and it is assessed on the individual situation of each of the spouses or partners. A cross-border couple may therefore be assimilated one year and not the next, depending on how one spouse's income moves, which shifts the tax class and the computation method without the household having decided anything.

For assimilated non-residents who meet the conditions, collective taxation is the default, in tax class 2, by combining household income, that is both Luxembourg and foreign income. That combination is the source of most unpleasant surprises: the spouse's foreign income, not taxable in Luxembourg, nevertheless enters the computation of the applicable rate. This is why we systematically cost both hypotheses, with and without assimilation, before filing a request in a cross-border file entrusted to our personal tax return service.

The 2026 temporary tax credit and the scale indexed on 1 January 2027

The Luxembourg income tax scale was not adapted for tax year 2026: a temporary tax credit applicable from 1 June to 31 December 2026 stands, according to the Direct Tax Administration, for a notional adaptation of one index tranche. That adaptation is built into the scale itself from 1 January 2027.

The measure comes in one version per category of taxpayer. For employees, the temporary tax credit is granted monthly by reference to gross pay: around EUR 4 per month at the bottom of the scale, EUR 44 per month across the EUR 4,600 to EUR 9,500 band of monthly gross pay, EUR 48 per month from EUR 9,925 to EUR 14,175, and EUR 54.25 per month above EUR 14,916. Parallel scales exist for pensioners and for the self-employed, the latter being set by band of annual net profit.

Two technical points deserve employers' attention. The credit is granted by the employer within the withholding on wages and salaries, on the basis of the tax withholding form, and not claimed by the employee: payroll parameters not updated on 1 June 2026 produce excessive withholding that only the annual adjustment will correct. And because the credit is temporary, it disappears from January 2027 payslips, where it is replaced by the effect of the indexed scale: a poorly informed employee will read a drop in the credit without seeing the symmetrical drop in the withholding.

The indexation commitment goes beyond 2027. According to the parliamentary documents on the tax reform, it is proposed to introduce a mechanism indexing the scale triggered after three index tranches, which would end the practice of discretionary adaptations decided law by law. We treat that point as a proposal under examination, not as settled: its fate depends on the vote on the text carrying the reform.

Single class U: what the vote of 27 October 2026 would change

The single tax class U in Luxembourg is carried by bill 8676: it would replace classes 1, 1a and 2 from tax year 2028, and its vote in public session is announced for 27 October 2026. That timetable is the one announced by the Chamber of Deputies; the text is not yet voted.

The state of progress has to be stated without ambiguity, because the measure is regularly presented as settled. The bill was deposited on 6 January 2026. The report, led by rapporteur and President of the Finance Committee Diane Adehm, was adopted in committee with the votes of the majority, the LSAP group abstaining, déi gréng and the ADR voting against. The debate and vote in public session are announced for 27 October 2026. As at the date of this article the text is therefore neither voted nor published: no decision on personal assets should be taken on the strength of class U alone.

The announced content includes a long transition, and it is that transition which concerns taxpayers already in class 2. Married couples benefiting from collective taxation before entry into force could keep the current regime for a transitional period of twenty-five years, that is until 2052. The beneficiaries of that transition are grouped into three categories by date of marriage, residence at the beginning of tax year 2028 and later move to Luxembourg residence. Collective taxation based on splitting would continue to apply during that period, through a new scale reproducing in substance the tariff applicable today to class 2.

The most immediate effect concerns persons today in classes 1 and 1a, who would move automatically into class U. For them the question is not a step to take but the level of the new scale, which alone determines the gain or the loss. For couples formed after 1 January 2028, by contrast, the choice between marriage and partnership would lose its current tax stake, which changes long-settled reasoning in succession and wealth planning. We are following the file and will date the update to this article the day after the vote.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickael LOC, licensed accountant (authorisation 10077274). Sources were verified on 3 October 2026, the date on which every rate, threshold, band, date and legal reference cited here was cross-checked against an official source.

The sources consulted are the following. From the Direct Tax Administration: the "Tarif de base applicable aux personnes physiques" page, for the first exempted band of EUR 13,230, the 8% to 12% bands in steps of EUR 2,205, the 14% band from EUR 24,255 to EUR 26,550 and the 39%, 40%, 41% and 42% bands at the boundaries of EUR 54,090, 117,450, 176,160 and 234,870; the "Premiere tranche exemptee d'impot" page, for the exempted adjusted taxable income of EUR 13,230 in class 1 and EUR 26,460 in classes 1a and 2;

the "Classes d'impot des contribuables residents" page, for the composition of the three classes under article 119 of the income tax law; the "Veuf, veuve" page, for class 2 being kept during the three years following the death; the "Splitting" page, for the definition as twice the tax corresponding to half the adjusted taxable income and for the worked example of EUR 100,000 giving EUR 7,341 then EUR 14,682 for tax year 2025; the "Fonds pour l'emploi" page, for the 7% surcharge and its increase to 9% above EUR 150,000 in classes 1 and 1a or EUR 300,000 in class 2, in force since tax year 2013;

the "Classes d'impot des contribuables non residents" page, for assimilation on request at the 90% threshold of worldwide income, its annual determination per spouse or partner and collective taxation as the default in class 2 with foreign income combined; the pages on the temporary tax credit for employees, pensioners and the self-employed, for the period from 1 June to 31 December 2026, for its qualification as a notional adaptation equivalent to one index tranche, for the monthly amounts cited and for the credit being granted by the employer within the withholding on wages and salaries;

the "Imposition individuelle des contribuables maries" page, for the existence of the option. From the Chamber of Deputies: parliamentary file 8676 and the communications on the deposit of 6 January 2026, on the adoption of the report in the Finance Committee and on the debate and vote being set down for public session on 27 October 2026, as well as on the twenty-five-year transition and its three categories of beneficiaries. From the government: the tripartite agreement of June 2026, for the timetable of the temporary tax credit and its integration into the scale on 1 January 2027.

Four points could not be verified in their primary source and are therefore not asserted here. The full text of the sources: the domains impotsdirects.public.lu, legilux.public.lu, guichet.public.lu, gouvernement.lu and chd.lu are blocked by the network proxy of our editorial environment, and these documents were read through indexed extracts via a search restricted to official domains; the citations above reproduce those extracts without extrapolation.

The individual boundaries of the 16% to 38% bands: they are derived arithmetically from the official boundaries of EUR 26,550 and EUR 54,090 and from the EUR 2,295 step read on the 14% band, and that derivation closes exactly on EUR 54,090, but it was not read line by line in the published scale. The exact computation formula for class 1a and its current thresholds: we describe a capped benefit intermediate between class 1 and class 2, without giving its boundaries, for want of being able to read the text in force.

And the date on which the Finance Committee report on bill 8676 was adopted. These points can be checked in the scale compendiums and the coordinated text of the income tax law on impotsdirects.public.lu and legilux.public.lu, in parliamentary file 8676 on chd.lu, and by a written request to the competent tax office for an individual case.

This article sets out the state of the law at the date of publication and does not constitute personalised tax advice: the applicable tax class and the actual burden depend on each taxpayer's family situation, residence and composition of income, and the scale cited may be amended by the vote announced for 27 October 2026. Report an error to contact@financialservices.lu: the correction is dated in the article.