First job in Luxembourg? You probably have a tax refund waiting
Many people don’t realize this when they start working in Luxembourg, but filing a tax return for that first year can often lead to a tax refund, sometimes a significant one.
This is especially true if you only worked a few months during the year.
I see this very often with people starting their first job in Luxembourg, especially students who begin working towards the end of the year.
Why does this happen?
In Luxembourg, income tax is taken directly from your salary each month. It’s called “tax withholding”. The amount is calculated based on your expected annual salary, so that over a full year, enough tax is withheld to match the total tax due on that income.
However, if you only worked a few months, your actual annual income will be much lower than what the monthly tax was based on.
Because the tax system is progressive (with different tax brackets), this often means that too much tax has been withheld compared to your actual yearly income.
A simple example
Let’s take a simple example to illustrate this.
Imagine you have an annual salary of 36.000€, which corresponds to a monthly salary of 3.000€.
Based on this, around 277€ is withheld each month.
Now, let’s say you started working in September and only worked for 4 months. So your total income for the year would be 12.000€, and you would have already paid 277€ × 4 = €1.108 in tax.
In a standard situation (tax class 1, no specific deductions), the tax due on €12,000 is 0€, as it falls within the first tax bracket.
This means that the €1,108 withheld during the year was effectively too high, and can be fully refunded after filing a tax return.
Note: this situation mainly applies if this was your only income during the year. If you had income before coming to Luxembourg (for example from another country), the result may be different.
What should you do?
You will need to file an annual tax adjustment (form 163) or a standard tax return, depending on your situation.
If this sounds like your situation, I can help you check and file your tax return. Most of my clients in this situation get back between 1.000€ and 2.000€.