A new tax era is coming in Luxembourg

On 6 January 2026, the Luxembourg government presented an ambitious package of social and fiscal reforms under the slogan "Mateneen. Fir all Famill. Fir all Kand." - "Together. For every family. For every child." The focus is on strengthening purchasing power, supporting parents, especially single parents, and systematically combating child poverty. Prime Minister Luc Frieden emphasised that the aim of these measures is to give every child the best possible start in life, regardless of their parents' income or marital status.

The main event was the announcement of the new tax system: from 1 January 2028, a single tax class will be introduced in Luxembourg, replacing the current categories 1, 1a and 2. This means an end to the system where the amount of tax was directly dependent on marital status: there will no longer be a difference between single, married or single parents. At the same time, those already taxed under Class 2 will retain their privileges for 25 years.

The innovation is based on several principles. Firstly, it recognises modern family formats - the tax system no longer "penalises" changes in personal life, such as divorce or death of a spouse. Secondly, the non-taxable minimum is increased to €26,650 instead of the previous €13,230 for Class 1, which automatically reduces the tax burden for most citizens. The government estimates that the reform will benefit around 85 per cent of current Class 2 taxpayers, and no one will lose out.

There will also be a new small childcare tax deduction of €5,400 per year for a child under the age of three. This recognises the value of parental work when the child is not yet in pre-school. In addition, families will be able to deduct the contributions to the voluntary pension insurance of a partner who temporarily leaves work to care for a child.

Special attention is paid to single-parent families. The credit for single parents will increase to €4,008 per year and the tax deduction for children living separately will rise to €5,928. In parallel, the ceiling on deductions for housing savings scheme and insurance benefits is rising.

An important innovation is the mechanism of automatic indexation of the tax scale to inflation. This should protect citizens' incomes from hidden tax increases due to cold progression, a phenomenon in which inflation leads to an increase in the tax burden without a change in real income.

Equally significant was the reform of chèque-service accueil (CSA), a system of vouchers to pay for kindergartens and other non-formal education facilities. It aims both to improve the quality of preschool education and to reduce the financial burden on parents.

Services will now be priced by actual hours rather than fixed packages, allowing more flexibility to adapt to the needs of the family. In addition, 20 free hours per week are being introduced for children aged 1 to 4 years old who are being cared for by day nannies.

The total economic impact for families is 79 million euros per year. Example: a family with a two-year-old child and an income of 2-2.5 times the minimum wage can save up to 5064 euros per year. The costs will be covered by the state through direct reimbursement to childcare centres.

In addition to tax relief and education support, the government is increasing child allowances. Parents will receive 45 euros more per month for children under 12 and 60 euros more for children over 12. There is also a new aid for low-income families with school-going children - up to 3,000 euros per child per year.

The allowance for the school season is increased by €60 for children aged 6-11 and €90 for children over 12. A fourth category is introduced for maternity allowances and key benefits, including school and special allowances, will now be automatically indexed.