Iceland's tax and social security burden on labour income was below the OECD average for all family types in the Taxing Wages report in 2000. Between 2000 and 2011, the gap narrowed for most family types. In 2011, for single parents with low earnings and two-earner couples with 2 children where one spouse earns the average wage and the other 67% of it, the tax wedges (income taxes plus employee and employer social security contributions minus cash transfers as a percentage of total labour costs) were above the OECD average by 2 and 1 percentage points respectively. In 2000, single parents with low earnings received government transfers that mostly offset the taxes they paid. The situation has been reversed as their tax wedge increased by 13 percentage points over the 11 years.

 

Tax Wedge in % of labour costs for different wage levels and household types, 2000 and 2011

The tax wedge increased for all family types between 2000 and 2011, except for single taxpayers with high earnings. Single parents with 2 children and 67% of the average wage faced the sharpest increase.

download the above graph and data for all OECD countries (xls/729kB)

 

The overall tax burden increased from 2010 to 2011 for all types of households in the Taxing Wages Report mainly due to reduction in cash transfer and frozen tax credits. The tax burden increased the most for single parents earning 67% of the average wage; their tax wedge rose by 2 percentage points to 18.5% of total labour costs. The tax wedge also changed significantly for average one-earner couples with 2 children; it increased by 1.8 percentage points to 21.0% of total labour costs. The other family types saw their tax wedge rise by between 0.4 and 1 percentage points.

 

Employees and employers in Iceland are required to make contributions to privately-managed pension funds. These “non-tax compulsory payments (NTCPs)” represent a strong increase over and above the overall tax burden. E.g. , in 2011, the compulsory payment wedge for the average single worker was 42% compared with the corresponding tax wedge of 34%. More information on these NTCPs in Iceland and other OECD countries is included in the OECD Tax Database at OECD Tax Database.

 

The tax wedge in Taxing Wages is calculated on the basis of the average gross wage earnings of full-time employees in the private sector (including employees at management level). The corresponding 2011 annual average gross wage for Iceland was ISK 5 577 213 (Secretariat estimate).

 

Graphical Exposition of the 2011 Estimated Tax Burden

 

The graphs in this section show the estimated tax burden on labour income in 2011 for gross wage earnings between 50 per cent and 250 per cent of the average wage (AW). They cover four family types with the average and marginal tax wedge presented in a separate graph for each:

• single taxpayers without children,
• single parents with 2 children,
• one-earner married couples without children, and
• one-earner married couples with 2 children

There are two graphs for each family type – one showing the average tax wedge as a percentage of total labour costs (TLC) and the corresponding net personal average tax rate as a percentage of gross earnings; the other showing the marginal tax wedge and the net personal marginal tax rate. Each graph presents a breakdown of the tax wedge into five separate components as a percentage of TLC:

• central income taxes,
• local income taxes,
• employee social security contributions,
• employer social security contributions, and
• family benefits.

 

Download the AVERAGE graphical expositon file, 2011 (XLS/609kB)

Download the MARGINAL graphical expositon file, 2011 (XLS/644kB)

 

Observations from the OECD concerning the data for 2011 can be found within the publication.

 

Special Feature: Wage Income Tax Reforms and Changes in Tax Burdens in Iceland: 2000-2009

 

The Special Feature of the 2010 edition of the Taxing Wages report calculates the changes over time in the tax burden on wage income ranging from 50% to 250% of the average wage by comparing the tax burden in 2009 with the tax burden in 2000 and calculates the respective contributions of changes in income taxes, employee social security contributions, employer social security contributions and cash benefits. The analysis focuses on changes in the average and marginal tax wedge as well as changes in the net personal average and marginal tax rate.

 

Change in the average tax wedge (2000 - 2009) (xls/1.5Mb)

Change in the marginal tax wedge (2000 - 2009) (xls/1.2Mb)

Change in net personal average tax rate (2000 - 2009) (xls/1.5Mb)

Change in net personal marginal tax rate (2000 - 2009) (xls/1.2Mb)

 

A guide for interpreting the attached special feature country charts (doc/50kB)

 

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More Information

A detailed description of the tax system in Iceland and the associated calculations for the tax wedge are included in Taxing Wages 2010.

Comparative analyses comparing country data can be found on our free online database OECD.StatExtracts, under: Public Sector, Taxation and Market Regulation > Taxation > Taxing wages.

Access to the complete dataset shown in the Taxing Wages report, including detailed country information, is through subscription. For details on how to subscribe please visit our "Getting Online Access" page at the OECD Library website.

 

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