Taxing Wages 2025

This chapter shows the main Taxing Wages results for 2024 for all countries and household types, which are summarised in comparative tables and figures. The results for France should be interpreted with caution because the indexation of the tax schedule and income tax parameters to inflation (of 1.8%) could not be incorporated in the Taxing Wages models for this Report. This omission, due to the late adoption of the 2025 budget bill, results in higher estimated tax rates in 2024 than those that were effectively in force.

Table 3.11 and Figure 3.1 show the average tax wedge for 2024, which combines personal income tax, employee social security contributions (SSCs) and employer SSCs while also taking into account the cash benefits to which each household type was entitled. Total taxes due minus transfers received are expressed as a percentage of labour costs, defined as gross wage plus employer SSCs (including payroll taxes). In the case of a single worker earning the average wage (AW), the tax wedge ranged from zero (Colombia) and 7.2% (Chile) to 47.9% (Germany) and 52.6% (Belgium). For a one-earner married couple with two children, at the average wage level, the tax wedge was lowest in Colombia (-4.4%) and highest in Türkiye (39.0%) and France2 (39.1%). As stated in Chapter 1, the tax wedge tends to be lower for a married couple with two children at this wage level than for a single individual without children due to receipt of cash benefits and/or more advantageous tax treatment. The tax wedge for a single parent with two children, earning 67% of the AW, was negative in New Zealand (-12.6%) and Colombia (-6.5%). A negative tax wedge occurs when the cash benefits received by families, plus any applicable non-wastable tax credits, exceed the sum of the total tax and SSCs that are due.

Table 3.2 and Figure 3.2 combine personal income tax and employee SSCs in 2024, expressed as a percentage of gross wage earnings (the corresponding measures for income tax and employee contributions separately are shown in Tables 3.4 and 3.5). For single workers at the average wage level without children, the highest average levels of tax plus SSCs were seen in Lithuania (38.2%) and Belgium (39.7%). The lowest average rates were in Colombia (0.0%), Chile (7.2%), Costa Rica (10.7%), Mexico (12.2%), Korea (16.3%), Switzerland (18.0%), Israel (19.6%), Estonia (20.5%) and New Zealand (20.8%).

Table 3.3 shows personal income tax and employee SSCs, reduced by the entitlement to cash benefits, for each household type in 2024. Figure 3.3 illustrates this for single individuals without children and one-earner married couples with two children, with both household types on average earnings. Comparing Table 3.2 and Table 3.3, the average tax rates for families with children (columns 4-7) are lower in Table 3.3 because most countries support families with children through cash benefits.

Comparing Table 3.2 and Table 3.3 for single parents earning 67% of the average wage shows that 32 countries provided cash benefits for this household in 2024. In Poland, New Zealand and France, cash benefits amounted to over 25% of gross earnings (30.6%, 28.6% and 28.6%, respectively). Thirty-two countries provided cash benefits for a one-earner married couple with two children earning the average wage, although these were less generous relative to income, ranging up to 20.5% in Poland. The lower level for the married couple may be attributable to three factors: single parents may be eligible for more generous treatment; benefits may be fixed in absolute amount; or benefits may be subject to means testing.

Table 3.4 shows personal income tax due as a percentage of gross wage earnings in 2024. For single persons without children earning the average wage (column 2), the income tax burden ranged from 0.0% (Colombia and Costa Rica) to 35.7% (Denmark). In most countries, at the average wage level, the income tax burden for one-earner married couples with two children was lower than that for single persons (compare columns 2 and 5). These differences are illustrated in Figure 3.4. In twelve countries, the income tax burden of a one-earner married couple with two children is less than half that faced by a single individual (Austria, Chile, Czechia, Germany, Korea, Luxembourg, Poland, Portugal, the Slovak Republic, Slovenia, Switzerland and the United States). There was no difference in a further thirteen countries: Australia, Colombia, Costa Rica, Estonia, Finland, Lithuania, Mexico, the Netherlands, New Zealand, Norway, Sweden, Türkiye and the United Kingdom. In Colombia and Costa Rica, neither a single worker nor a one-earner married couple at the average wage paid personal income taxes.

In two OECD countries, the personal income tax rate for a married worker at the average wage with two children was negative in 2024: Germany (-0.1%) and Slovak Republic (-12.8%). This was due to the presence of non-wastable tax credits, whereby credits were paid in excess of the taxes due. Single parents with two children earning 67% of the average wage showed a negative tax burden in eight countries: Austria, Czechia, Germany, Korea, Poland, the Slovak Republic, Spain and the United States. In four other countries (Chile, Colombia, Costa Rica and Israel) this household type paid no income tax.

Comparison of columns 5 and 6 in Table 3.4 demonstrates that if the second spouse was employed at 67% of the average wage, the income tax burden of the household (now expressed as 167% of the average wage) would be slightly higher in 20 countries, the largest differences being in Germany (9.2 percentage points [p.p.]) and the Slovak Republic (11.4 p.p.). The income tax burden was lower for the two-earner household where the principal earns the average wage and the spouse earns 67% of the average wage in fourteen countries, the largest difference being in the Netherlands (4.7 p.p.), Israel (3.4 p.p.) and Finland (3.2 p.p.). There was no impact on the tax burden in Chile, Colombia or Costa Rica.

An important consideration in the design of an income tax is the degree of progressivity – the rate at which the income tax burden increases with income. A comparison of columns 1 to 3 in Table 3.4 provides an insight into the progressivity of income tax systems of countries. Comparing the income tax burden of single individuals at the average wage level with their counterpart at 167% of the average wage (columns 2 and 3), the lower-paid worker faced a lower tax burden in all countries except in Colombia and Hungary in 2024. In Colombia, neither the average single worker nor their counterpart at 167% of the average wage paid personal income tax. In Hungary, a flat tax rate was applied on labour income and all households without children paid the same percentage of income tax. Comparing single individuals at 67% of the average wage level with their counterparts at the average wage level (columns 1 and 2), the lower-paid worker also faced a lower tax burden across all countries except Colombia, Costa Rica and Hungary. The burden faced by single individuals at 67% of the average wage level represented less than 25% of the burden faced by their counterparts at 167% in two countries: Chile (0.0%) and Costa Rica (0.0%).

The addition of SSCs to the average tax rate reduces this progressivity as well as the proportional tax savings (i.e. tax savings of the low-income workers relative to higher-income workers). When comparing Table 3.2 with Table 3.4, the OECD personal average tax rate including SSCs for single individuals at 67% of the average wage level was only 31.8% lower than their counterparts at 167%, compared to the OECD average tax savings of 47.1% for personal income taxes alone in 2024. The OECD average tax savings observed for one-earner married couples with two children at the average wage level relative to the average single worker fell from 30.5% for the personal income tax to 18.7% for the personal average tax rate including SSCs. These lower figures reflect that there is little variation in SSC rates across household types, as shown in Table 3.5.

Table 3.5 shows employee SSCs as a percentage of gross wage earnings in 2024. For a single worker without children at the average wage (column 2), the contribution rate varied between zero (Australia, Colombia, Denmark and New Zealand) and 23.6% (Slovenia). Australia, Denmark and New Zealand did not levy any employee SSCs paid to general government. In Colombia, most of the SSCs are paid to funds outside the general government and are considered to be non-tax compulsory payments; they are therefore not counted as SSCs in the Taxing Wages calculations. There were three other countries with very low rates: Iceland (0.1%), Mexico (1.4%) and Estonia (1.6%).

SSCs are usually levied on all earnings without a minimum earnings threshold. Although a number of OECD member countries apply a ceiling to SSCs, this usually applies to wage levels above 167% of the average wage. As a result, the contribution on earnings tends to be flat between 67% and 167% of average wage for most countries. A constant proportional burden for employee SSCs for the eight household types was observed in Lithuania (19.5%), Hungary (18.5%), Poland (17.8%), Türkiye (15.0%), Greece (13.9%), the Slovak Republic (13.4%), Czechia (11.6%), Portugal (11.0%), Costa Rica (10.7%), Latvia (10.5%), Norway (7.8%), the United States (7.7%), Chile (7.0%), Spain (6.5%), Ireland (4.0%) and Estonia (1.6%). In addition, at the average wage level, Belgium and Germany imposed different levels of SSCs on employees according to their family status (Figure 3.5).

Table 3.6 and Figure 3.6 show the percentage of the marginal increase in labour costs that was deducted through the combined effect of increasing personal income tax, employee and employer SSCs (including payroll taxes) and decreasing cash transfers in 2024. It is assumed that the gross earnings of the principal earner rise by 1 currency unit. This is the marginal tax wedge. In most cases, the marginal tax wedge absorbed 25% to 55% of an increase in labour costs for a single individual without children earning the average wage in 2024. However, in six countries, these individuals faced marginal wedges above 55%: Finland (56.2%), Luxembourg (57.3%), France3 (58.2%), Austria (58.3%), Italy (64.1%) and Belgium (65.0%). By contrast, Chile (10.2%) had the lowest marginal tax wedge. For Colombia, no income tax was paid at the average wage level in 2024 while SSCs are considered as non-tax compulsory payments (NTCPs) and thus not included in the Taxing Wages calculations.4

In twenty-seven OECD member countries, the marginal tax wedge for a one-earner married couple at average earnings with two children was either the same as that for a single worker at average wage with no children or within 5 p.p. thereof. The marginal tax wedge was more than 5 p.p. points lower for one-earner married couples in seven countries: France5 (16.2 p.p.), Luxembourg (14.5 p.p.), the United States (9.3 p.p.), Germany (7.2 p.p.), Portugal (6.9 p.p.), Slovenia (6.7 p.p.) and Switzerland (6.2 p.p.). In contrast, the marginal rate for one-earner married couples with two children was more than 5 p.p. higher than for single workers with no children in Canada (5.5 p.p.), the Netherlands (5.6 p.p.), Iceland (7.2 p.p.) and New Zealand (27.0 p.p.). These higher marginal rates arise because of the phase-out of income-tested tax reliefs and/or cash benefits. When an income-tested measure is phased out, the reduction in the relief or benefit compounds the increase in the tax payable. These programmes are set out in greater detail in the relevant country chapters in Part II of the Report.

Table 3.7 and Figure 3.7 show the incremental change to personal income tax and employee SSCs less cash benefits when gross wage earnings increased at the margin in 2024. As with the marginal tax wedge (Table 3.6), personal income tax and employee SSCs absorb between 25% and 55% of a worker’s pay rise for single individuals without children at the average wage level in most countries. The marginal tax rate for the average worker was higher than 55% only in Belgium (55.6%) and lower than 25% in Chile (10.2%), Costa Rica (10.7%), Mexico (23.0%) and Korea (23.5%). As previously mentioned, no income tax was paid in Colombia at the average wage while SSCs are considered non-tax compulsory payments.

In twenty-seven OECD countries, the net personal marginal tax rate for one-earner married couples with two children at the average wage level was either the same as or within 5 p.p. of that for single persons with no children. The marginal rate was more than 5 p.p. lower for the one-earner married couple in seven countries: France6 (22.1 p.p.), Luxembourg (16.2 p.p.), the United States (10.0 p.p.), Portugal (8.5 p.p.), Germany (8.0 p.p.), Slovenia (7.8 p.p.) and Switzerland (6.6 p.p.). In contrast, the marginal rate for one-earner married couples with two children was more than 5 p.p. higher than it was for single persons with no children in Canada (5.7 p.p.), the Netherlands (6.2 p.p.), Iceland (7.7 p.p.) and New Zealand (27.0 p.p.). Similar to the marginal tax wedges, these higher net personal marginal rates arise because of the phase-out of income-tested tax reliefs and/or cash transfers.

Table 3.8 shows the percentage increase in net income relative to the percentage increase in gross wages when the latter increased by 1 currency unit in 2024, i.e. the elasticity of after-tax income.7 Under a proportional tax system, net income would increase by the same percentage as the increase in gross earnings, in which case the elasticity is equal to 1. The more progressive the system is – at the income level considered – the lower this elasticity will be. In the case of the one-earner married couple with two children at the average wage (column 5 of Table 3.8), the most progressive systems of income tax plus employee SSCs in 2024 were found in New Zealand (0.45), Belgium and Italy (both 0.55), the Netherlands (0.58) and Ireland (0.61). In contrast, Chile (0.96), France8 (0.95) and Mexico (0.88) either implemented or were close to a proportional system of income tax plus employee SSCs for this household type. For Colombia (0.96) and Costa Rica (1.0), no income tax was paid at that level of earnings. In Colombia, SSCs are considered non-tax compulsory payments and not included in the Taxing Wages calculations. However, the household’s cash benefit remained fixed while the gross wage increased. As a result, the percentage increase in net income was slightly less than the percentage increase in the gross wage.

Table 3.9 provides a different elasticity measure: the percentage increase in net income relative to the percentage increase in labour costs (i.e. gross wage earnings plus employer SSCs and payroll taxes) when the latter rose by 1 currency unit in 2024.9 In this case, taxes and SSCs paid by employers are also part of the analysis. In nineteen countries, the value of this elasticity lay between 0.50 and 0.97 for the eight selected household types. The elasticity was below 0.50 for single parents earning 67% of the average wage in the United States and Luxembourg (both at 0.49), Belgium (0.44), the Netherlands (0.43), New Zealand (0.38), the United Kingdom (0.34), France10 (0.31), and Australia and Canada (both 0.24) and for one-earner married couples at the average wage level with two children in New Zealand (0.45). In contrast, the elasticity was between 0.97 and 1.0 for most household types in Costa Rica and Chile and some household types in Canada, Colombia, Germany and Hungary, and for one household type in Estonia and Lithuania. Using this elasticity measure, the income tax system was regressive for a single individual at 67% of the average wage with and without children in Mexico (1.01) and for a single individual at 167% of the average wage in Germany (1.04) and Austria (1.07).

Table 3.10 and Table 3.11 set out gross wage earnings and net income for the eight household types in 2024 after all amounts have been converted into U.S. dollars with the same purchasing power. Single workers earning the average wage had a net income above USD 50 000 in fifteen countries: Switzerland (USD 84 728), the Netherlands (USD 63 080), Norway (USD 61 772), Ireland (USD 61 567), the United Kingdom (USD 60 361), Luxembourg (USD 60 149), Iceland (USD 59 936), Austria (USD 58 796), Korea (USD 56 464), Germany (USD 55 807), Canada (USD 55 670), Australia (USD 55 316), the United States (USD 53 401), Denmark (USD 53 393) and Belgium (USD 52 101) (Table 3.10 column 4). The lowest levels (below USD 25 000) were in Mexico (USD 17 813) and Colombia (USD 20 848). In the case of a one-earner married couple with two children at the average wage level, families had net incomes above USD 60 000 in Australia, Austria, Belgium, Canada, Denmark, Germany, Iceland, Ireland, Korea, Luxembourg, the Netherlands, Norway, Switzerland, the United Kingdom and the United States, with the lowest level again observed in Colombia and Mexico (Table 3.11). With the exceptions of Costa Rica, Mexico and Türkiye, the net income for the one-earner married couple in OECD countries was higher than for the single individual (with both household types at the average wage level) due to the favourable tax treatment of this household and/or the cash transfers to which they were entitled.

Table 3.12 and Table 3.13 show the corresponding figures to Table 3.10 and Table 3.11 for labour costs and net income in 2024. Thus, the ‘net’ columns in Table 3.10 and Table 3.11 are identical to those in Table 3.12 and Table 3.13, respectively. Usually, labour costs are significantly higher than gross wages, because any employer SSCs (including payroll taxes) are taken into account. If measured in US dollars with equal purchasing power, labour costs for single workers earning the average wage level (see Table 3.12) were highest (above USD 90 000) in France (USD 91 825), Ireland (USD 94 964), Norway (USD 97 059), the Netherlands (USD 97 164), Luxembourg (USD  100 830), Germany (USD 107 168), Belgium (USD 109 810), Switzerland (USD 109 886) and Austria (USD 110 886), and lowest (less than USD 30 000) in Colombia (USD 20 848) and Mexico (USD 22 523). Annual labour costs are equal to annual gross wage in Chile, Colombia and New Zealand. In those countries, neither compulsory employer SSCs nor payroll taxes paid to general government are levied on wages. However, employers in Chile and Colombia are subject to NTCPs.