The Rental allowance

The Rental allowance

Starting from June 1, 2024, employers have a new tool to attract young talents: the rental allowance, introduced by adding a provision to Article 115 of the Income Tax Law.

What is the rental allowance?

The rental allowance is a monthly financial aid that the employer can grant to a young employee who rents their primary residence. This measure aims to facilitate access to housing for young workers while offering them a tax benefit.

Eligibility conditions for the rental allowance

 For an employee to be eligible for this allowance, several conditions must be met:

1. Amount of the allowance:
   • The allowance paid by the employer cannot exceed the amount of rent excluding charges paid by the employee.
   • The maximum amount of the allowance is capped at 1,000 euros per month.
2. Tax exemption:
   • 25% of the allowance amount is exempt from tax after the social security contribution deduction.
3. Employee’s age:
   • The employee must be under 30 years old at the beginning of the tax year.
4. Annual gross salary:
   • The annual gross salary, excluding the rental allowance, must not exceed 30 times the Qualified Social Minimum Wage (QSMW), i.e., 92,553.30 euros for the current year, according to index 944.43.
   • In the case of an incomplete year, the employer must extrapolate the annual salary to verify compliance with this ceiling.

Prorating and special situations

• Part-time or incomplete month:
  • If the employee works part-time or if a month is incomplete, the allowance ceiling must be prorated based on the hours worked reported to the Joint Social Security Center (CCSS).
• Tax split:
  • In the case of a tax split, where the employee is taxed in several countries based on their working time in each of them, the tax exemption must be proportionally distributed according to the days worked in Luxembourg and abroad during the month the allowance is paid.

Employer's responsibility

The employer is responsible for ensuring that all eligibility conditions are met before paying the rental allowance. They must ensure:

• Compliance of the allowance amount with the rent excluding charges.
• Respect of the 1,000 euros ceiling.
• The employee's eligibility in terms of age and annual salary.
• Correct prorating in case of part-time work or an incomplete month.
• Proper distribution of the tax exemption in case of a tax split.

Conclusion

Implementing the rental allowance represents an opportunity for employers to financially support their young employees while benefiting from tax advantages. This measure encourages companies to invest in the well-being of their employees and retain them by offering valuable housing assistance. However, it requires rigorous management by employers to ensure compliance with all legal and tax conditions.