Luxembourg's new unified tax class: Everything you need to know

Luxembourg is replacing its 3 tax classes with a single unified 'Classe U' from 2028. Here's what changes for singles, couples, and families.

Luxembourg just announced its biggest tax shake-up in decades. Prime Minister Luc Frieden called it "starting the year with a bang" and he's not wrong.

From January 1, 2028, the country's three tax classes will merge into a single unified class. The price tag? Around €1 billion per year. Here's what you need to know.

What's changing?

Currently, Luxembourg has three tax classes: Class 1 (singles without children: 325,000 taxpayers), Class 1a (single parents, retirees, widowed: about 100,000 taxpayers), and Class 2 (married couples and registered partners filing jointly: 242,000 taxpayers).

Here's the thing: single taxpayers now significantly outnumber couples in Luxembourg. The current system, where married couples get preferential treatment, no longer reflects reality.

From 2028, everyone gets the same tax treatment regardless of marital status. The new unified class, officially called 'Classe U', is modeled on the current Class 1a, which means it's more generous than Class 1.

As Frieden put it: "Everyone should be able to choose their family model without the state getting involved. The state must be neutral in this regard."

The tax-free threshold doubles from €13,230 to €26,650. That's a significant chunk of income that won't be taxed at all.

Who benefits most?

Singles (current Class 1)

You're the big winners. Here's what you'll save annually:

• €40,000 income: +€2,406 net
• €50,000 income: +€2,600 net
• €75,000 income: +€2,517 net
• €100,000 income: +€2,518 net
• €125,000 income: +€2,519 net

Single parents (current Class 1a)

You'll benefit too, plus the single-parent tax credit increases from €3,504 to €4,008. At €40,000 income, expect +€549 per year. At €50,000, it's +€567.

Couples with children (current Class 2)

Around 85% of Class 2 households will pay less. A couple with one child earning €50,000 combined saves €2,188/year. At €75,000, it's €3,789. At €125,000, you're looking at €5,037 more in your pocket.

Retired couples

At €100,000 income, expect +€4,160 net per year.

High earners

The government originally planned a small tax increase for adjusted taxable income above €150,000. They scrapped it to keep their "nobody pays more" promise, which is partly why this reform costs €1 billion.

What about the other 15%?

Around 15% of couples won't immediately benefit, specifically those where one spouse earns more than 75% of the household income. For these single-income or highly unequal households, the current Class 2 "splitting" system works better.

But here's the key point: nobody loses. These households can keep their current Class 2 treatment for a 25-year transition period (until 2052). As Finance Minister Roth put it: "It won't be in everyone's interest to change tax class straight away."

They can switch to the unified class anytime, but once they do, there's no going back.

New benefits for families with young children

The reform introduces a brand new "petite enfance" deduction: €5,400 per year (that's €450/month) for each child under 3. This recognizes the financial strain of early parenthood and the fact that many parents reduce their working hours during this period.

For separated parents, this allowance is shared between both parents.

The government has budgeted €30 million for this measure in 2028, rising to €40 million in 2029.

More deductions going up

Beyond the headline changes, several deduction limits are being raised:

Insurance & loan interest: Deduction limit rises from €672 to €900

Home savings (Bausparvertrag): Up to €1,500/year for ages 18-40 (was €1,344), and €900 for others (was €672)

Childcare, help & dependency care: Flat-rate allowance increases from €5,400 to €6,000

Spouse pension contributions: NEW: you can now deduct contributions to voluntary pension insurance for a spouse who has reduced or stopped working

Better protection after life changes

Under the current system, if your spouse dies or you divorce, you lose your Class 2 status after just 3 years. The reform extends this to 5 years, giving people more time to adjust financially.

And ultimately, with the unified class, such changes will become irrelevant, there's only one class, so your tax treatment stays stable regardless of what happens in your personal life. As Frieden said: "People's tax situation will no longer be influenced when their family situation changes."

Frontaliers (cross-border workers): Yes, this applies to you

Cross-border workers are explicitly included in this reform. If you work in Luxembourg but live in Belgium, France, or Germany, the new unified class and all its benefits apply to you too.

How is this being funded?

The reform costs €850-950 million annually. Part of the funding comes from not adjusting the tax scale for 2.5 past wage indexations, as well as indexations scheduled until 2028. Despite the cost, Frieden emphasized: "We would like net income to be increased and for families to live better."

When does this happen?

The tax reform takes effect January 1, 2028. The government plans to vote on it before the end of 2026, with 2027 used for implementation.

Note: Some family benefits (child allowance increases) actually start earlier: January 1, 2027.

The bottom line

Finance Minister Gilles Roth put it simply: "Personne ne paiera plus d'impôts après la réforme fiscale." Nobody will pay more taxes after this reform.

The €1 billion annual cost reflects a deliberate choice: a more favorable tax scale for everyone, combined with targeted measures for concrete life situations: children, housing, insurance, care, and single parenthood. As Frieden described it: "This is a strong child-friendly and family-friendly policy."