Useful tax facts you may not know

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Vlad Chinilov
Vlad Chinilov
Vlad Chinilov
My name is Vlad, I've been living in Luxembourg for three years now and I work in fintech, at Vivid Money.
Фото: Jakub Żerdzicki, Unsplash

Фото: Jakub Żerdzicki, Unsplash

When people talk about taxes for individuals, they often limit themselves to the amount withheld by their employer. However, there are subtleties to the tax code that may not be obvious at first glance.

Monthly calculation is not always accurate

Luxembourg has income tax and solidarity tax, but it's hard for us to estimate how much we're underpaying or overpaying on the payroll. So people coming from the CIS have difficulties. They are used to paying payroll tax and don't owe anything else.

This is not the case in Luxembourg. Here, people need to get used to knowing that what they are going to be deducted at the end of the month is not final. This means that at the end of the tax year they may have to pay something extra, and in some cases they may even have to pay some of the money back.

Salaries in Luxembourg are paid once a month. At the end of the month, your employer will send you a payslip showing your gross contractual salary plus any income: car allowances, lunch vouchers, gifts and many other things. The payslip then tells you how much tax and social security contributions the company has withheld from your pay, and the total - how much should go into your bank account.

The amount of personal income tax withheld depends on the rules set out in an individual's tax card. Basically, this is a document that stores data about your tax class and any other rules that the employer must apply when calculating the amount of personal income tax withheld. There are specific tax deductions that are also applied according to the information on the card, in addition to the standard classes described. For example, in the "family expenses" category, there is a tax deduction of 4,500 euros per year for a married couple.

At the end of the year, your employer is required to give you an annual payslip. This shows your total income and the amount of taxes withheld. This form is more or less standard, it includes all taxes, all contributions and so on.

Then comes the fun part!


If you are single and your income is less than 100,000 euros a year, you cannot do anything. You can say: "Here is the amount that was taken from me during the year, I don't want to do anything else".

The second option is if you earned more than 100,000 euros Then you are required to file a tax return in the form provided by the tax office. Married couples in tax class 2 must also file a tax return.

After receiving the declaration, the tax office recalculates the amount of your liability, not according to your class, but according to the official table of tax brackets with a progressive rate. It then sends you a final document asking you to pay some extra money or, on the contrary, to indicate the account number where the refund will be paid.

You're overpaying

Why? The fact is that the company charges tax class 1 33% of income every month, and that's actually a lot. A large part of the population has a lower effective tax rate.

So there is a good chance that at the end of the year you will receive a substantial refund. Another interesting point: in Luxembourg there are services that calculate your salary, and they don't do it accurately. They rather predict what the monthly pay slip will look like, but the final calculation is still left to the tax office.

They are based on tax bracket, so they try to calculate your final income based on that. They don't take into account that your actual tax bracket may be lower than 33% and that you may receive a refund from the IRS.

The situation is different for married couples. Both partners or one of them is in tax class 2, which means that 15% of the income is withheld by the employer. In this case, 15% is certainly not enough. Therefore, at the end of the year, when they file their tax return, the tax office often recalculates it upwards and the surcharge is considerable.

There is one more thing the IRS has. If they have calculated your overpayment, then the next year you have to pay the same amount in advance, and then the IRS will do the calculations again and say whether you have paid a lot or not.

The IRS also knows that Class 2 is inconvenient because you can't predict your actual income, and it may turn out that you should have saved it because you'll still have to pay a hefty surtax at the end of the year.

That's why MyGuichet has a special tool for couples. How to use it? You have to go to the form, fill in the estimated income - enter your and your partner's details. The estimated effective tax rate will then be calculated. If you agree with it, then you need to sign the application form and send it to the tax office.

If the tax office agrees, and they usually do, the information is entered on your card. After that, the employer will start withholding taxes according to the new data. Yes, the withholding will be higher, but at the end of the month you will receive a "fair" amount that you can count on, and you will not have to pay anything extra! Unfortunately, this practice only works for Class 2 partners.

This way, you can get your tax returns into a simple and easy-to-understand format pretty quickly. This is to understand how much your employer withholds from you, how much the tax office will ask for or refund, and whether you need to set aside money at the end of the year.

What is a tax declaration and what to do with it
The section of our blog about taxes
How to complete a tax return in Luxembourg
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Authors: Aleksandr