Learn › Income tax in Luxembourg

In short: Luxembourg levies a progressive income tax from 0% (up to about €13,000 of taxable income) to a top rate of 42%, graduated across three tax classes (1, 1a, 2) by family situation. On top come the Employment Fund contribution (7%, 9% above high thresholds) and, separately, employee social contributions totalling roughly 12.95% in 2026 (health 3.05%, pension 8.50%, long-term care 1.40%). Employees pay through withholding tax. (As of 2026; check official sources when in doubt.)

Income tax basics in Luxembourg

Kontoo editorial team · Updated 06/24/2026

In Luxembourg, income tax (impôt sur le revenu) follows a progressive scale: the higher your income, the higher your marginal rate. Your family situation determines your tax class (1, 1a or 2). For employees and pensioners, tax is usually deducted directly from pay (withholding tax, retenue à la source). On top of tax come social contributions (health, pension and long-term care insurance). This chapter explains these building blocks neutrally. The figures reflect the position as of 2026; when in doubt, always check the official sources.

Identify your tax class: class 1 (single, no dependent child), class 1a (single parents, widowed persons, or those aged 65 and over) or class 2 (married / partners with joint taxation).
Apply the progressive scale: the first roughly €13,000 of taxable income is taxed at 0%, then rates rise in steps from 8% up to a top rate of 42% (as of 2026).
Add the Employment Fund contribution (solidarity tax): 7%, or 9% on the part above €150,000 (class 1/1a) or €300,000 (class 2).
Account for social contributions withheld separately from pay: health insurance ~3.05%, pension ~8.50% and long-term care ~1.40% (as of 2026).

What matters

Luxembourg’s income tax rests on a progressive scale with many brackets. The first euros of taxable income are tax-free (around €13,000 in 2026), then each additional bracket is taxed at a rising rate, from 8% up to a maximum of 42%. It helps to distinguish the marginal rate (applied to your top slice of income) from the average rate (total tax divided by income): the average rate is well below the marginal rate. The tax class adjusts the result to your family situation. Class 2, for married or partnered couples with joint taxation, is usually the most favourable; class 1 is for singles without a child; class 1a covers, among others, single parents, the widowed and those aged 65 and over. On top of the base tax comes the Employment Fund contribution (often called the solidarity tax): 7% of the tax, raised to 9% on the part of income above high thresholds (€150,000 in class 1/1a, €300,000 in class 2). Separately from tax, employees pay social contributions: health insurance via the CNS (~3.05%), pension insurance (~8.50% since 2026) and long-term care insurance (~1.40%). A reform to unify the tax classes is announced for the coming years (around 2028); until then the rules described here apply. As of 2026 — check official sources when in doubt.

ExampleSimplified, illustrative example (as of 2026, before allowances and deductions): on taxable income of €50,000 in class 1, the first ~€13,000 is taxed at 0% and the following brackets are taxed progressively, giving tax in the order of €8,000 to €10,000 (an approximate average rate of 16 to 20%). Add the Employment Fund contribution of 7% of that amount, about €560 to €700. Separately, employee social contributions of roughly 12.95% on €50,000 come to nearly €6,475. These orders of magnitude only illustrate the mechanics; the real calculation depends on deductions and personal circumstances.

To gauge the long-term effect of regular saving, try Kontoo’s compound interest calculator (/compound-interest-calculator). For an official tax calculation, use the simulator of the Administration des contributions directes (impotsdirects.public.lu).

In depth

Marginal rate versus average rate

The marginal rate applies to your top slice of income; the average rate is total tax relative to total income. Understanding this difference prevents overestimating the tax actually paid and clarifies the effect of a pay rise.

Social contribution ceilings

Health and pension contributions are capped at five times the social minimum wage, while long-term care insurance applies with no upper ceiling (after an allowance). Above the cap, these contributions stop rising, unlike tax. As of 2026.

Announced reform of the tax classes

A reform plans, over time, more individualised taxation and a revision of the current classes (intended to take effect around 2028). Until then the three-class system described here applies; follow the official announcements.

Checklist

I know my tax class (1, 1a or 2) and what determines it.
I understand that the scale is progressive and that the average rate is lower than the marginal rate.
I know that the Employment Fund contribution (7%, 9% above the thresholds) is added on top of the tax.
I can tell income tax apart from social contributions (health, pension, long-term care).

Common myths

Myth: “Moving into a higher bracket lowers my take-home pay.”

Reality: False. The scale is progressive: only the euro in the higher bracket is taxed at the higher rate, not your whole income. Earning more always leaves more net.

Myth: “CNS contributions are a form of income tax.”

Reality: No. Social contributions (health, pension, long-term care) fund social security and are levied separately from tax, with their own rates and ceilings.

Frequently asked questions

What is the difference between tax classes 1, 1a and 2?

Class 1 is for single people without a dependent child. Class 1a covers single parents, widowed persons, and people aged 65 and over. Class 2 applies to married couples or registered partners opting for joint taxation and is generally more favourable. (As of 2026.)

What is withholding tax (retenue à la source)?

For salaries and pensions, tax is deducted each month directly by the employer or pension fund, based on your tax card. This avoids paying all the tax at once; a tax return can later settle the balance.

Do social contributions count as income tax?

No. Contributions to the CNS (health insurance), pension and long-term care are separate from income tax. In 2026 the employee share totals roughly 12.95% of gross pay. The pension contribution rose to 8.50% on 1 January 2026.

All lessons · Glossary · Editorial · Kontoo does the math and explains – this is general education, not tax, legal or financial advice.

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