Taxing Wages 2026

Effective tax rates on labour income for a single worker earning the average wage rose across a majority of OECD countries for the fourth consecutive year in 2025. In the same year, effective tax rates increased for all eight household types examined in this Report on average across the OECD for the first time since 2022, when many countries phased out COVID-19 support measures. The largest increases =were observed for households with children, which narrowed the difference in effective tax rates between households with children and those without for the second consecutive year.

Taxing Wages 2026 provides cross-country comparison of the labour tax wedge, which shows total taxes on labour paid by employees and employers, minus cash benefits received by working families, as a percentage of labour costs. A higher tax wedge tends to reduce incentives to work and hire by reducing take‑home pay and increasing employers’ labour costs.

For a single worker earning the average wage, the tax wedge rose in 24 countries, fell in 11 and stayed the same in three in 2025 relative to the previous year. On average across the OECD, the tax wedge for this household type increased by 0.15 percentage points (p.p.) in 2025 to 35.1%. The largest increase (of 2.45 p.p.) was observed in the United Kingdom; this was partly due to an increase in employer social security contributions (SSCs) and partly a result of fiscal drag, the phenomenon by which effective tax rates increase mechanically when the parameters of tax systems are not adjusted to inflation. Increases greater than 1 p.p. also occurred in Estonia (1.95 p.p.), Germany (1.34 p.p.) and Israel (1.09 p.p.). Estonia increased its personal income tax (PIT) rate from 20% to 22% in 2025 while the increases in the tax wedge in Germany and Israel were a result of higher SSCs for employers and employees as well as fiscal drag.

Decreases in the tax wedge for this household type exceeded 1 p.p. in Italy (-1.21 p.p.), Latvia (-1.44 p.p.) and Australia (-1.67 p.p.). The decreases in Italy and Latvia were due to larger tax reliefs for average wage earners, while in Australia the drop was mainly attributable to a reform of the tax schedule that reduced statutory PIT rates.

The tax wedge increased for all other seven household types analysed in Taxing Wages on average across the OECD in 2025. The largest increase was for the single parent of two children earning 67% of the average wage, whose tax wedge increased by 0.52 p.p. on average to 16.3% and rose in 22 countries. The tax wedge for this household type rose most in Slovenia (5.6 p.p.), the Slovak Republic (4.7 p.p.) and the United Kingdom (4.3 p.p.), due to a mixture of fiscal drag, higher SSCs, and lower tax reliefs and cash transfers. The largest decreases were observed in Luxembourg (-3.2 p.p.), Lithuania (-2.7 p.p.), Denmark, Ireland and Latvia (all -2.0 p.p.), reflecting lower PIT rates and higher child-related tax benefits.

The tax wedge for a one-earner couple with two children at the average wage level increased in 22 countries and decreased in 15 in 2025; the 0.46 p.p. rise in the OECD average tax wedge (to 26.2%) was the second-largest increase among the household types. The difference between the OECD average tax wedge for this household type and that of the single worker earning the average wage narrowed by 0.31 p.p. to 8.9 p.p. in 2025, indicating a reduction in the fiscal advantage for households with children.

The Report includes a Special Feature examining the statutory progressivity of labour taxation in OECD countries. Building upon the statutory progressivity indicator introduced in the 2013 edition of Taxing Wages, it examines how the tax wedge on labour income varies according to the earnings and composition of working households in OECD countries. Across the OECD, labour tax systems tend to be most progressive for households at lower earnings levels and with children due to the impact of tax reliefs measures and cash transfers.

The Special Feature also finds that tax systems have become more progressive in OECD countries since 2000 for households earning below the average wage while the progressivity of the tax wedge on earnings above the average wage has not changed significantly, as OECD countries have tended to reduce taxes on low-earning workers by more than for average- and higher-earning workers over this period.