5. Children

In Luxembourg, families benefit from significant tax advantages aimed at reducing the tax burden related to the education, care, and maintenance of children.

These benefits may take the form of:

• Higher deduction limits,
• Deduction of childcare,
• Tax credits

Child tax allowance

The child tax allowance is a direct reduction of the amount of tax due, granted to taxpayers with one or more dependent children. This reduction varies depending on:

• the number of children,
• their age,
• their school or university status,
• and the taxpayer’s family situation (e.g., single parent).

It is automatically granted by the tax authorities if the children are correctly declared as dependents in the tax return.

Main conditions for child tax allowance

For children under 21

• They must be part of the taxpayer's household at the beginning of the tax year.
• A temporary absence (for studies or other non-profit-making reasons) does not prevent relief.

The child can only be part of one household per year.

For children aged 21 and over

They are only eligible for relief if they:

• are pursuing full-time studies over several semesters (university or vocational training), or
• are disabled or infirm and continue to receive child benefit.

The child's personal income does not prevent relief as long as they are part of the household and are pursuing their studies.

Special situations

Alternating residence

If the child lives with each parent for part of the year, the tax allowance can only be granted to one parent.

The other parent may be eligible for a tax allowance for children, which we will discuss later in this chapter.

Unmarried parents living together

Each parent forms a separate household for tax purposes.

Joint children are attached to the household of the parent who received the tax relief the previous year, who receives the first payment of child benefit, or who is in tax bracket 1A.

Dependent children outside the household

If you support and educate a child who is not part of your household, you can claim a tax allowance, which we will discuss later in this chapter.

Who can declare a dependent child in case of separation or divorce?

When a couple is separated or divorced, only one of the two parents can declare a child as a dependent in their tax return.
In general, the parent who receives Luxembourg family allowances for the child is entitled to the related tax benefits (child tax allowance, single parent tax credit – CIM, etc.).

However, if both parents have joint parental authority and expenses are shared equally, they may agree on which parent will receive the Luxembourg family allowances.

Concrete examples

• A single mother with two children aged 6 and 9, benefiting from tax class 1a and the single parent credit (CIM), can see her tax reduced by more than 3.000€ thanks to the child allowance and the CIM credit.
• Two separated parents with a single child can agree that the father will declare the child every other year in order to benefit from the tax advantages alternately. This must be clearly stated in the respective tax returns.

Children who are not part of the tax household

If you have one or more children who do not live in your tax household but you contribute significantly to their maintenance, education or vocational training costs, you may be eligible for a taxable income allowance.

This tax benefit applies to situations where a child is dependent on a taxpayer but is not part of their tax household (e.g. in the event of divorce or separation).

What expenses are incurred for a child who is not part of the tax household?

• Food, clothing and housing expenses
• Medical expenses
• Expenses related to leisure activities, gifts or pocket money
• School expenses
• Expenses for apprenticeships or training

Amount of the deduction

You can deduct up to 4.422€ per child per year.

Main conditions

• The child must not be part of the taxpayer's tax household (in the tax sense).
• The taxpayer must contribute more than 50% of the child's maintenance, education or vocational training costs.
• If the child has their own income exceeding 60% of the minimum social wage, the parent's contribution is no longer considered ‘necessary’ and the allowance may be refused.

When the child lives part-time with each parent, for example every other weekend or every other week, the tax situation depends on their affiliation with the tax household. If the child is officially affiliated with one parent's tax household, they are considered part of that household, even when they spend time with the other parent.

Children under 21 years of age

The allowance is granted if the child is mainly supported and educated at the taxpayer's expense.

All living expenses (food, accommodation, clothing, leisure activities, medical expenses, etc.) are taken into account.

The allowance is limited to a maximum of 4.422€ per year per child.

Children aged 21 and over

The allowance is granted if the child is pursuing full-time vocational training lasting more than one year (university, college, etc.).

Evening classes, short courses or internships do not qualify for the allowance.

All study-related expenses (accommodation, food, school fees, medical care, leisure activities) can be taken into account.

The allowance is limited to 4.422€ per year per child.

Single parent tax credit (CIM)

The single parent tax credit (Crédit d'impôt monoparental) is a tax benefit for single parents with at least one dependent child. It is intended to compensate for the absence of a second income in the household and can be up to 2.505€ per year.

Eligibility requirements

To be eligible for the single parent tax credit, you must:

• be classified in tax class 1a,
• not be living as a couple (neither married, in a civil partnership, nor in a declared legal cohabitation),
• have at least one dependent child.

The CIM is deducted directly from the tax payable or added to any refund.

Amount of the single parent tax credit

The tax credit varies according to adjusted taxable income:

• Less than 60.000€: maximum CIM of 2.505€ per year.
• Between 60.000€ and 105.000€: the CIM is calculated using the following formula:

2.505 − (adjusted taxable income − 60.000) × 0,039

• Above 105.000€: fixed CIM of 750€ per year.