Annual
Large businesses
Self-employed
SMEs
Last updated more than 5 years ago
Note that employers no longer carry out annual adjustments for their employees since the tax year 2014.
However, employees may request an annual adjustment in their own name in order to regularise their income tax situation, whether they are resident or not resident.
An employee's salary is subject to an automatic deduction in the form of income tax.
This withholding at source is done by the employer on each salary payment.
In certain cases, the employer may have to request an annual adjustment, in order to adjust the withholding tax deducted throughout the tax year and, if applicable, refund the employee any tax surplus withheld at source.
The annual adjustment involves comparing the annual amount of withholding tax with the annual income tax effectively owed by the employee.
Any employer who employs more than 10 people on 31 December of the year in progress must make an annual adjustment for each employee.
N.B.: employers who employ less than 10 people may make an annual adjustment, but they are not obliged to do so.
However, the employer does not have to make an adjustment for employees:
An employer is not allowed to not carry out an annual adjustment for non resident employees who:
Persons who started work during the year in Luxembourg or who changed employer during the year and also endured periods of unemployment without receiving benefits may submit an application for a salary tax rebate by annual adjustment to the RTS tax office of their domicile. In fact, as the withholding tax rate at source is based on a monthly fixed salary over 12 months, it is in this case based on a higher level of annual income than is actually received for the year. The calculated tax is therefore too high and will be reimbursed via the annual adjustment.
The application must be submitted to the tax office before 31 December of the year following the adjustment.
When making an annual adjustment, it is assumed that:
Only taxpayers who fulfil one of the following conditions are eligible for an annual adjustment:
The employer must make the adjustment to the following elements:
The employer calculates the balance of the annual adjustment, i.e. the difference between the annual tax due and the tax deductions made.
When comparing these amounts, 2 scenarios are possible:
The income tax declaration form is drafted in order to take into account this particularity.
An employee receives an annual gross salary of EUR 25,308 (below EUR 100,000). The employee is set in tax class 1. His main tax card indicates that an additional tax card has not been issued. The main tax card of the employee has the following deduction: FD code EUR 1,397 per year.
The non ('no') box for sickness allowance is ticked. The employee has more than 2 years' seniority and is still employed in the business on 31 December 2012. The business has 500 employees.
Based on this information, the employer can carry out the annual adjustment.
Gross salary |
EUR 25,308 |
|
---|---|---|
Deductions |
Social contributions |
EUR 3,074 |
Withholding tax on the tax card |
EUR 1,397 |
|
Annual semi-net remuneration |
EUR 21,114 |
|
Income tax on the salary deducted by the employer (based on the monthly tax schedule) |
EUR 996 |
|
Tax due according to the annual schedule |
EUR 1,109 |
The tax due according to the annual schedule is higher than the tax deducted by the employer.
The salaried worker owes (1,109 - 996 =) EUR 113 to the Luxembourg Inland Revenue.