2. The tax scale in Luxembourg

The role of the tax scale

The tax scale determines the amount of income tax due based on a taxpayer’s net taxable income. It is progressive: the higher the income, the higher the rate applied. Only the portion of income within each bracket is taxed at that bracket’s rate, which prevents the entire income from being taxed at the highest rate.

Impact of the tax class

The application of the tax scale depends on the taxpayer’s tax class:

There are three tax classes in Luxembourg: 1, 1a, and 2.

Accordingly, there are also three different tax tables that are used to calculate the taxes to be paid.

The different tax classes in Luxembourg

What is a tax class?

A tax class is a fiscal category assigned by the Luxembourg tax authorities to each taxpayer, based on their family situation, tax residence, and, in some cases, their family dependents. It determines the tax scale applied to income and directly impacts the amount of tax payable.

The Luxembourg tax system mainly distinguishes three tax classes (1, 1a, and 2). These classes are used for withholding tax at source but also influence how your annual tax return is assessed at the end of the year.

The three main classes

Class 1:
Single persons without dependent children, divorced persons, or married persons taxed individually.

Class 1a
It is allocated to single taxpayers with at least one dependent child, widowed persons, or persons aged 65 and over. This class benefits from a more favourable tax scale than class 1.

Class 2
Married couples or registered partners opting for joint taxation. This class generally offers the most advantageous regime thanks to income splitting.

The progressive tax scale in 2024

Luxembourg applies income brackets with progressive marginal rates. The rate generally varies from 0% to 42%, to which the solidarity contribution may be added.

Here is the progressive scale applied in Luxembourg for the taxation of annual income in 2024, with the marginal rates corresponding to each income bracket.

Presentation of the 2024 tax scale

Annual taxable income	Marginal tax rate
Up to 12.438€	0%
12.438 – 14.508€	8%
14.508 – 16.578€	9%
16.578 – 18.648€	10%
18.648 – 20.718€	11%
20.718 – 22.788€	12%
22.788 – 24.939€	14%
24.939 – 27.090€	16%
27.090 – 29.241€	18%
29.241 – 31.392€	20%
31.392 – 33.543€	22%
33.543 – 35.694€	24%
35.694 – 37.845€	26%
37.845 – 39.996€	28%
39.996 – 42.147€	30%
42.147 – 44.298€	32%
44.298 – 46.449€	34%
46.449 – 48.600€	36%
48.600 – 50.751€	38%
50.751 – 110.403€	39%
110.403 – 165.600€	40%
165.600 – 220.788€	41%
Above 220.788€	42%

Example of calculation using the progressive scale

Let us imagine a taxpayer with an annual taxable income of 30.000€.

Their tax is not calculated on the entire amount at a rate of 20% (the rate applied to the 29.241€ – €31.392€ bracket), but progressively on each bracket:

Income bracket	Amount	Rate	Tax
Up to 12.438€	-	0%	0€
12.438 – 14.508€	2.070€	8%	165,60€
14.508 – 16.578€	2.070€	9%	186,30€
16.578 – 18.648€	2.070€	10%	207,00€
18.648 – 20.718€	2.070€	11%	227,70€
20.718 – 22.788€	2.070€	12%	248,40€
22.788 – 24.939€	2.151€	14%	301,14€
24.939 – 27.090€	2.151€	16%	344,16€
27.090 – 29.241€	2.151€	18%	386,58€
29.241 – 30.000€	759€	20%	151,80€

Total tax: 2.218,68€

This amount corresponds to the sum of the taxes calculated for each income bracket. It is significantly lower than what would be obtained if the marginal rate of 20% were applied to the entire income, which would amount to 6.000€.

Understanding tax rates

What is the marginal rate?

The marginal rate is the tax rate applied to the last bracket of your income. In other words, this rate does not apply to your entire income, but only to the highest portion.

In our example:

• The taxpayer has an income of 30.000€
• The marginal rate is 20%, as this is the rate for the last bracket (29.241 – 31.392)
• Only the 759€ in this last bracket is taxed at 20%

The marginal rate is mainly used to determine how much an additional euro earned would cost and shows how tax increases progressively with income.

What is the average rate?

The average rate corresponds to the average percentage of tax paid on total income.

It is calculated as follows:

(Total tax / Total income) X 100

In our example:

• Total tax: 2.218,68€
• Total income: 30.000€
• Average rate: 2.218,68 ÷ 30.000 ≈ 7,4%

The average rate is therefore much lower than the marginal rate because the first income brackets are taxed at low rates or even at 0%.

Contribution to the Employment Fund

In Luxembourg, personal income tax is increased by a contribution to the Employment Fund, which is used to finance measures to support employment and professional integration.

This contribution is calculated as a percentage of the income tax due:

• 7% for adjusted taxable income less than or equal to 150.000€ in tax classes 1 and 1a, or less than or equal to 300.000€ in tax class 2.

• 9% for adjusted taxable income above these thresholds.