Married couples are automatically taxed collectively in tax class 2: one spouse pays taxes according to the actual tax rate and the other spouse is taxed at 15%. However, these 15% are generally much too low when compared to the actual tax rate that must be applied. As a result, a recalculation of the amount of taxes due at the end of the year oftentimes results in the payment of quarterly advances.
Since the introduction of individual taxation on January 1st, 2018, married couples continue to be automatically taxed in tax class 2 but can opt for individual taxation with a reallocation of income. In doing so, a tax rate in tax class 1 is determined according to the overall household income and inscribed on the tax deduction form of each spouse.
By doing so, the lower rate of 15% is abolished and the actual amount of taxes due in tax class 1 is directly deducted from the monthly salary or pension. By thus directly paying the taxes due during the current fiscal year with each salary or pension, the quarterly advances become obsolete.
Married taxpayers who have opted for individual taxation must subsequently submit a tax return in order to claim tax allowances and deductions.
If you wish to change your taxation method for the 2020 tax year, you must express your choice by using the form 166 made available by the Administration des Contributions Directes (ACD). A decision as to the method of taxation remains however reversible.
But which taxation method would be more favourable for your personal situation? Collective taxation in tax class 2 or individual taxation in tax class 1?
The LCGB offers its members a simulation in order to determine which taxation method is the most advantageous according to the personal situation. The LCGB also offers help and assistance in filling out the tax return and applying for a change of the taxation method.
