Taxing Wages 2025

The graphs in this section show effective tax rates on labour income in 2024 for gross wage earnings between 50% and 250% of the average wage (AW). For each OECD member country, there are separate graphs for four household types: single taxpayers without children, single parents with two children, one-earner married couples without children and one-earner married couples with two children. The net personal average and marginal tax rates ([the change in] personal income taxes and employee social security contributions [SSCs] net of cash benefits as a percentage of [the change in] gross wage earnings) are included in the graphs that show the average and the marginal tax wedge, respectively.1

The results for France for 2024 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, which was 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.

The graphs illustrate the relative importance of the different components of the tax wedge: central government income taxes, local government income taxes, employee SSCs, employer SSCs (including payroll taxes where applicable) and cash benefits as a percentage of total labour costs. It should be noted that a decreasing share in total labour costs implies that the value of tax payments less benefits is not increasing as rapidly as the corresponding total labour costs. It does not necessarily imply that the value of payments less benefits is decreasing in cash terms.

Low-income households are treated favourably by the tax and benefit systems of many OECD countries. Negative central government income taxes are observed in Belgium because of the non-wastable tax credits for low-income workers and for dependent children; in Canada2 because of the non-wastable working income tax benefit; in Austria, Czechia, Germany, Korea and the Slovak Republic because of non-wastable child tax credits; in Israel because of the non-wastable earned income tax credit (EITC) for families with children; in Luxembourg because of a tax credit for social minimum wage earners; in Poland because of a conditional refundable child tax credit; in Spain because of non-wastable tax credits for single parents; and in the United States because of the non-wastable EITC and the child tax credit. In Sweden, the charts show negative central government income taxes for the four household types due to an EITC; however, the tax credit is wastable in the sense that it cannot reduce the individual’s total income tax payments to less than zero. The EITC is also deducted from the local government income tax.

In the majority OECD countries, the net personal average tax rate is negative for single parents or one-earner married couples at lower income levels, meaning that these household types do not pay income taxes or SSCs, or these payments are fully offset by cash benefits. For example, the net personal average tax rate becomes positive at more than 100% of the AW in Poland (at 109% of the AW for the single parent and the one-earner married couple with children) and the Slovak Republic (at 107% of the AW for the single parent and at 124% for the one-earner married couple with children). In Austria, Czechia, Israel, Korea, Poland the Slovak Republic and Spain, negative net personal average tax rates result from the combined effect of refundable tax credits and cash benefits. There are large variations in cash benefit levels across OECD countries. They represent about a quarter or more of total labour costs for low-income single parents and/or one-earner married couples with two children in Australia, Canada, France, Ireland, Lithuania, the Netherlands, New Zealand, Poland and the United Kingdom.

The marginal tax wedge is relatively flat across the earnings distribution in some countries because of flat SSCs and personal income tax rates. The marginal tax wedge for single taxpayers without children on incomes between 50% to 250% of AW is flat in Czechia (45.1%) and Hungary (41.2%). In Colombia, the marginal tax wedge for the single worker and the one-earner married couple without children is equal to zero up to 247% of the AW, as no personal income taxes is paid up to this level. For households with two children, the marginal tax rate is zero across the whole income range with the exception of a spike at 206% of the AW, which is caused by the loss of eligibility for the child-related cash transfer. Moreover, contributions to pension, health and employment risk insurance are considered to be non-tax compulsory payments (NTCPs)3 and therefore are not counted as taxes in the Taxing Wages calculations. The marginal tax wedge is also relatively constant in Iceland, the Slovak Republic and Türkiye. In Iceland, the marginal tax wedge for households without children is 40.2% on earnings below 130% of the AW, 47.6% on earnings at 130% and then 47.7% on earnings from 131% to 250% of the AW. In the Slovak Republic, the marginal tax wedge for the single worker is 45.9% on earnings below 149% of the AW, 48.4% on earnings at 149% and then 49.1% on earnings from 150% to 250% of the AW. In Türkiye, the marginal tax wedge for all household types is 47.8% on earnings up to 179% of the AW, 52.8% on earnings at 180% of the AW, and 53.6% on earnings from 181% to 250% of the AW.

SSCs are levied at flat rates in many OECD countries. Some countries have an earnings ceiling above which no additional SSCs have to be paid. The variations in the marginal SSCs are in general the same for the four family types, since the contribution rates or income ceilings do not vary depending on marital status or the number of dependent children. Within the income range of 50% to 250% of the AW, the marginal employer SSC rates fall to zero as a result of income ceilings in Germany (at 145% of the AW), Luxembourg (208%), the Netherlands (117%) and Spain (179%). Marginal employee SSC rates fall to zero in Austria (at 138% of the AW), Germany (145%), the Netherlands (205%), Spain (179%) and Sweden (115%). In Canada, the marginal employee SSC rate falls to zero at 84% of the AW. However, two spikes are observed at 82% and 227% of the AW. The Ontario Health premium, which is calculated on an income schedule, is a fixed payment that is adjusted when a taxpayer moves to a higher income bracket.

In addition, taxpayers may experience declining marginal employee and/or employer SSC rates as a percentage of total labour costs over some parts of the earnings range as their wage increases. This is observed in Austria, Belgium, Canada, France, Germany, Japan, Korea, Luxembourg, the Netherlands, Poland, Switzerland, the United Kingdom and the United States. Large decreases in marginal rates as a percentage of total labour costs are observed in Austria, where the employer SSC rate drops from 21.6% to 6.3% on earnings above 136% of the AW; in Japan, where the marginal employee and employer SSC rates drop from 12.7% to 5.3% and from 13.6% to 6.2% respectively on earnings above 142% of the AW; in Luxembourg, where the marginal employee SSC rate drops from 10.9% to 1.40% on earnings above 206% of the AW; in Poland, where the employee and employer SSCs rate drops from 15.3% to 10.8% and from 14.1% to 3.6% respectively on earnings above 242% of the AW; in the United Kingdom, where the marginal employee SSC rate drops from 7.0% to 1.8% of earnings above 96% of the AW; and in the United States, where the marginal employer and employee SSC rates drop from 7.1% to 1.4% on earnings above 237% of the AW.

In Slovenia, the marginal employer SSCs are negative up to 57% of the AW. This is because the employer pays additional contributions on earnings that are below the social security minimum income threshold. This additional contribution decreases as earnings increase and is completely exhausted once the employee’s earnings reach the social security minimum income threshold. The negative marginal employer SSC rates derive from the decreasing additional contributions.

Taxpayers face net personal marginal tax rates and wedges of about 70% or more in several of OECD countries at specific earnings levels. This is the case for taxpayers without children in Australia, Austria, Belgium, Chile, France4, Italy, Japan, Luxembourg, Mexico, Slovenia, Spain and the United Kingdom. They also apply to families with children in Australia, Austria, Belgium, Canada, Chile, Colombia, Czechia, France5, Greece, Ireland, Italy, Korea, Japan, Lithuania, Luxembourg, Mexico, New Zealand, Portugal, the Slovak Republic, Slovenia, Spain and the United Kingdom. In many countries, these high marginal tax rates are partly the result of reductions in benefits, allowances or tax credits that are targeted at low-income taxpayers as earnings rise.

The zigzag movement in the marginal tax burdens observed in some of the graphs arises when changes in taxes, SSCs and/or cash benefits for small rises in income vary over the income range in a non-continuous way. This is the case because of rounding rules in Germany, Japan, Luxembourg, Sweden and Switzerland; and the discrete characteristics of the PAYE (Pay As You Earn) tax credit, the spouse tax credit and the child transfers in Italy.