Why Luxembourg is ending tax benefits for single-income couples

Luxembourg's 2028 tax reform is a deliberate policy shift, from supporting stay-at-home models to incentivising dual earners. Here's the government's rationale.

Luxembourg's new unified tax class isn't just about simplification. It's a deliberate political choice: to stop penalising the "second earner" in a couple, even if that means single-income households lose their tax advantage.

The government's reasoning is laid out explicitly in the bill. Here's what's really driving the reform.

The problem: Luxembourg punishes second earners

The diagnosis is clear: Luxembourg is among the OECD countries with the highest tax burden on the second income earner in a household.

Under the current system of collective taxation and income splitting, when a second partner starts working, their salary is added to the existing household income and immediately taxed at a high marginal rate. The government considers this "an objective obstacle" to entering or returning to the labour market, particularly for part-time work or after a career break.

The bill doesn't mince words: this tax structure discourages work.

The fix: individual taxation

The solution is individual taxation. From 2028, each spouse will be taxed on their own income, according to a single scale based on the current Class 1a.

The key change? Your partner's income no longer affects your tax rate.

The bill states explicitly that "the single tax class will mean a lower tax burden for the second earner in a couple" and that the second earner "will have more incentive to enter the labour market."

It goes further, noting a potential macro-economic effect: this shift "could lead to an increase in the supply of female labour."

The tipping point: the 25% threshold

One of the most revealing details in the bill is the precise identification of who benefits.

The reform is more favourable for married or PACS couples "if the income contributor with the lowest taxable income contributes at least 25% of the couple's total income."

This 25% threshold is key. It means the reform mainly benefits couples where both partners earn a meaningful income. Households with very unequal incomes, where one partner earns little or nothing, continue to benefit more from the current splitting system.

The government recognises this openly. It's not trying to hide it.

The trade-off: single-income couples lose out

The bill includes a concrete example to illustrate what single-income couples stand to lose.

For a couple with an adjusted taxable income of €100,000, the current splitting method divides this by two: €50,000 per notional spouse. The tax on €50,000 in Class 1 is €7,341. Total tax in Class 2: €14,682 (excluding the employment fund contribution).

The bill's conclusion is unambiguous: "This tax advantage cannot be fully offset by the application of the new single tax class."

In other words, the government explicitly accepts that the tax model that historically favoured single-income couples will lose part of its advantage. This is a political choice, not an oversight.

Why 25 years? The transition explained

This is why the government is offering a 25-year transition period for couples already married or in a civil partnership.

The reasoning is based on concrete data: around 30,000 single-income households in Luxembourg have one member aged over 50. For these households, the capacity to adapt economically is limited, returning to the labour market after a prolonged break is statistically unlikely at this stage of life.

The bill also acknowledges that these households made major life decisions, career choices, asset planning, family arrangements, based on the net income they could expect under Class 2. A sudden change would upend irreversible choices.

The 25-year transition is framed as a matter of "legitimate confidence", honouring the expectations people built their lives around.

Accompanying measures: targeted, not compensatory

The reform includes several support measures:

• €5,400 childcare allowance per child under 3
• Deductible pension contributions for an inactive spouse
• Increased single-parent tax credit (from €3,504 to €4,008)

But the bill is clear: these are "targeted corrective measures, not full compensation." They're designed to ease specific situations, not to restore the full advantage of the old system.

The bottom line

The 2028 tax reform marks a clear shift in philosophy.

Taxation is no longer designed to structurally support the single-earner couple model. Instead, it's designed to reduce the penalty on the second income earner: to make it easier, not harder, for both partners to work.

The government has documented the trade-off, quantified the effects, and identified exactly who wins and who loses. This isn't an accident. It's one of the most deliberate political choices of the reform.

Whether you see this as progress or loss depends on your household, and your values. But either way, it's worth understanding what's really driving the change.