Luxembourg plans tax surcharge for parents with separate custody

Luxembourg Finance Minister Gilles Roth has announced plans to introduce a tax surcharge of €922.50 per child for parents with separate custody who do not qualify for tax category 1A. This innovation is aimed at supporting low-income families and will be a temporary measure ahead of a major tax reform planned before the end of the current legislature.

Since last autumn, one parent with separate custody can receive tax category 1A, while the other remains in category 1 but receives a deduction of €5,400 per child. The new allowance is intended to compensate for the difference in tax burden and ease the financial burden on parents.

Gilles Roth explained that the tax surcharge will be applied on a reduced scale for incomes up to €76,000 per year, which will particularly help families with lower incomes. MPs note that parents can alternate between categories 1 and 1A each year, and in the case of two children, each child can be registered to a separate parent to optimise tax payments.

The new tax surcharge and changes for autumn 2024 are temporary while the government prepares for a major tax reform to be presented before the end of the current legislature. Gilles Roth promises to present the first developments within a year, but so far without a bill.

Diane Adehm MP, chair of the finance committee in parliament, said the new allowance was aimed at supporting less well-off families and was a step in the right direction. At the same time, Green Party MP Sam Tanson proposed an equal 1A category for both parents, but the initiative was put on hold. The reason was Gilles Roth's statement that giving 1A to both parents would create an excessive tax advantage.

Although the tax surcharge is scheduled to be implemented as early as this year, the exact timetable has not yet been determined. Diane Adem indicated that legal restrictions may prevent its retroactive application from 1 January. The possibility of applying the surcharge only for future tax periods is currently under discussion.

According to the Caisse pour l'avenir des enfants, only about a hundred families in Luxembourg share family benefits after divorce. In most cases, the division is determined at the time of separation or formalised in a divorce agreement.