The path of your salary in Luxembourg - from gross to net
When you arrive in Luxembourg, understanding where your money goes can be confusing.
You negotiated a salary with your employer and now trying to figure out how much you will get on your bank account, or maybe how much you’ll get with a 10% of salary increase, or just understand how much taxes you have to pay..
If you already have a payslip, you look at it and don’t understand fully how it works, there are different bases, different pourcentages, different deductions etc.. how the amounts have been calculated ? you feel lost and it’s totally normal. Then at the end of the year you file a tax return and get back or have to pay some money, which gets even more confusing.
Let’s look first from a far and see the big picture (I’ll go more into details for the different notions in separate articles).
Basically there are 3 modifications applied to your gross salary: the social contributions, the taxes and adjustments based on your personal situation.
Example: for a single person with a standard situation and a 3k monthly salary.
From the 3k, he will pay 325€ of social contributions, 265€ of taxes and don’t have any adjustement. So he will get 2410€ in the bank account.
Social contributions are the contribution you pay to finance the health and pension system in Luxembourg. They represent around 12,5% of your gross income.
Taxes are paid directly every month from your salary based on information from your tax card and are evaluated again by the tax office through your tax return which can result to a reimbursement or a payment of taxes.
What about deductions ? It’s not influencing my net salary ? I heard that I could deduct some expenses to get some money back. So it will impact your annual taxes, so it has to be declared through the tax return and the overall taxes will be calculated again. Then you’ll be granted some money back.
So to summarize, your employee withdraw from your gross salary, a part of social contributions, a part of taxes and do some adjustments.