This annual publication provides details of taxes paid on wages in OECD countries. This year’s edition focuses on the decomposition of personal income taxes and the role of tax reliefs, which can take the form of tax allowances or tax credits on the taxes levied by different levels of government. For the year 2024, the report also examines personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers, and cash benefits received by workers. It illustrates how these taxes and benefits are calculated in each member country and examines how they impact household incomes. The results also enable quantitative cross-country comparisons of labour cost levels and the overall tax and benefit position of single persons and families on different levels of earnings. The publication shows average and marginal effective tax rates on labour costs for eight different household types, which vary by income level and household composition (single persons, single parents, one or two earner couples with or without children). The average tax rates measure the part of gross wage earnings or labour costs taken in tax and social security contributions, both before and after cash benefits, and the marginal tax rates the part of a small increase of gross earnings or labour costs that is paid in these levies.
Taxing Wages 2025
Abstract
Executive Summary
Workers’ post-tax income increased in a majority of OECD countries in 2024 as real wages before tax grew and effective tax rates on labour were broadly unchanged. This followed two years in which high inflation and fiscal drag had weighed on workers’ take-home pay in many OECD countries, curtailing the recovery in post-tax incomes that followed the COVID-19 shock. Single-parent households with children remained a key focus for labour tax policy in 2024: as was also the case in 2023, this was the only household type for which the tax wedge1 declined on average across the OECD and for which the tax wedge remained below its pre-pandemic level.
The OECD average tax wedge increased on average for seven of the eight household types examined in Taxing Wages but for six of these household types the increase was no greater than 0.05 percentage points (p.p.). For a single worker earning the average wage, the OECD average tax wedge edged up by 0.05 p.p. from the level in 2023 to 34.9%; this was the third consecutive year in which the average tax wedge for this household type has risen, following two years of decline during the COVID-19 pandemic in 2020 and 2021.
The tax wedge for a single worker earning the average wage increased in 20 of the 38 OECD countries between 2023 and 2024, decreased in 15 and stayed the same in three. The increase in the tax wedge exceeded one percentage point in Italy (1.61 p.p.), where the average wage rose above the threshold for the reduced social security contribution rate in 2024, and in Slovenia (1.44 p.p.), due to the introduction of a flat-rate compulsory employees’ health insurance contribution. The decrease in the tax wedge for a single worker earning the average wage exceeded 1 p.p. in Finland (-1.57 p.p.), the United Kingdom (-1.74 p.p.) and Portugal (-1.75 p.p.). The decreases in Finland and the United Kingdom were due to a reduction in social security contributions, while in Portugal the main driver of the decrease was a revision of the tax schedule that reduced the tax rates applied to the first six brackets.
The OECD average tax wedge for a one-earner couple with two children at average wage levels rose by 0.16 p.p. to 25.8% in 2024, the largest increase among the household types, but declined in 20 countries. The difference between the OECD average tax wedge for this household type and that of the single worker earning the average wage narrowed by 0.11 p.p. to 9.2 p.p. in 2024, indicating a slight weakening of the fiscal advantage for households with children. The OECD average tax wedge for a two-earner couple with two children (one earning 100% of the average wage, the other earning 67% thereof) increased by 0.01 p.p. in 2024 to 29.5%. For this household type, the tax wedge decreased in 20 countries.
The only household for which the average tax wedge decreased in 2024 was the single parent of two children earning 67% of the average wage. This was also the only household type for which the OECD average tax wedge decreased in 2023, when it fell by 0.36 p.p. On average, the tax wedge for single parents decreased by 0.38 p.p. to 15.8% in 2024 and fell in 24 countries. Particularly large decreases in the tax wedge for this household type were observed in Poland (-7.2 p.p.) and Portugal (-4.1 p.p.), which in both cases was partly due to increases in the value of cash transfers for families with children.
The Report contains a Special Feature on decomposing personal income taxes, with a specific focus on tax credits and allowances. While most studies on the impact of personal income tax on progressivity and post-tax incomes focus on marginal tax rates, this Special Feature uses the Taxing Wages models for 2024 to show how credits and allowances interact with the tax schedule to affect the average tax rates of different household types and influence the progressivity of labour taxation in OECD countries. The analysis demonstrates that these instruments make a significant difference to households’ final post-tax net income and are a channel by which OECD countries reduce the tax liability of specific household types, in particular households with children. This is particularly the case for countries without other types of cash transfer, such as New Zealand; countries with relatively few tax brackets, such as the Slovak Republic; and countries with relatively high effective tax burdens on households without children, such as Belgium. The chapter also shows that credits and allowances collectively enhance the progressivity of labour taxation by between 28% and 44% depending on the household type, although credits tend to contribute more to the progressivity of PIT systems than allowances, especially when there is no means-testing mechanism to determine the amount of the relief.
The average tax wedge for a single worker earning the average wage increased in a majority of countries in 2024
The tax wedge of a single worker with no children earning the average national wage was 34.9% of labour costs on average across the OECD in 2024.
Between 2023 and 2024, the tax wedge for this household type increased in 20 countries, fell in 15 and was unchanged in three.
In 2024, the largest tax wedge for this household type was observed in Belgium (52.6%), Germany (47.9%), France2 (47.2%), Italy (47.1%) and Austria (47.0%).
The personal average tax rate for this household type was 25.0% of gross wage earnings in 2024. Belgium had the highest rate, at 39.7%; Denmark, Germany, Lithuania and Slovenia were the only other countries with rates above 35%.
The tax wedge for most household types with children fell in a majority of countries in 2024
The tax wedge fell in a majority of OECD countries for three of the four Taxing Wages household types with children.
The tax wedge for a single parent earning 67% of the average wage declined in 24 countries and by 0.38 p.p. on average across the OECD to 15.8%. This was the only household type for which the OECD average tax wedge declined.
The tax wedge for a one-earner couple at the average wage declined in 20 countries and was 25.7% on average across OECD countries. The tax wedge for a two-earner couple (one earning 100% of the average wage, the other earning 67% thereof) also declined in 20 countries and averaged 29.5% in 2024.
The tax wedge for a married couple with children in which both earn the average wage rose in 20 countries, with the OECD average rising to 31.8%.
The tax wedge for a one-earner married couple with children was lower than for a single worker in almost all OECD countries. The difference was greater than 15% of labour costs in Belgium, Luxembourg, Poland and the Slovak Republic.
Average wages and post-tax incomes recovered in real terms across the OECD
The average wage increased in 37 OECD countries in nominal terms in 2024 from the previous year and increased in 34 countries in real terms. In 2022 and 2023, real wages declined in a majority of OECD countries.
The post-tax income of a single worker earning the average wage increased in 28 countries between 2023 and 2024 in real terms, having declined in 21 countries in 2023 and in 33 countries in 2022.
Decomposing personal income taxes (Special Feature)
The Special Feature examines the impact of credits and allowances on personal income tax rates of three household types: a single worker earning the average wage, a single parent with two children earning 67% of the average wage, and a one-earner married couple with two children where the principal earns the average wage.
Tax credits reduced the tax liability of a single worker earning the average wage by 1.9% on average across the OECD in 2024. The equivalent reduction was 4.7% for the one-earner married couple and 7.3% for the single parent.
Tax allowances amounted to 15.9% of taxable income for the single worker earning the average wage, 21.7% for the one-earner married couple and 27.7% for the single parent.
For a single worker earning the average wage, tax allowances amounted to 5.4% of post-tax net income on average across OECD countries in 2024 while tax credits amounted to 2.6%. For the single parent, tax credits amounted to 7.4% of net income while allowances were 5.7%; for the one-earner married couple, credits were 5.4% of net income and allowances were 5.2%.
Excluding credits and allowances reduces the structural progressivity of personal income tax among almost all OECD countries for all three household types; excluding credits has a greater impact on progressivity than excluding allowances.
← 1. The tax wedge is the primary indicator presented in this Report. It measures the difference between the labour costs to the employer and the corresponding net take-home pay of the employee. It is calculated as the sum of the total personal income tax and social security contributions paid by employees and employers, minus cash benefits received, as a proportion of the total labour costs for employers.
← 2. France’s tax schedule for 2024 has been adjusted for inflation in the 2025 budget bill. However, due to the late adoption of the 2025 budget bill, the indexation of the tax schedule and income tax parameters to inflation (of 1.8%) could not be incorporated into the Taxing Wages model for this Report. This results in higher estimated tax rates than those effectively in force.
