The chapter presents graphical expositions of effective tax rates on labour income in 2025 for gross wage earnings ranging from 50% to 250% of the average wage. These are illustrated in separate graphs for four household types and for each OECD Member country. The household types are single taxpayers without children; single parents with two children; one-earner married couples without children and one-earner married couples with two children. The graphs are divided into two sets showing the components of the average and marginal tax wedge as a percentage of total labour costs. The graphs also show the net personal average and marginal tax rates.
Taxing Wages 2026
The Progressivity of Labour Taxation in OECD Countries
Abstract
The graphs in this Chapter show effective tax rates on labour income in 2025 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 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 at a specific point in the earnings range 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 for one-earner married couples 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 Italy because of the combined effect of the employee tax credit, the credit for the presence of dependent spouses and the bonus for low-earning dependent workers; in Luxembourg because of a tax credit for social minimum wage earners; in Poland because of a refundable conditional 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 that these payments are fully offset by cash benefits. For example, the net personal average tax rate becomes positive at the level of the average wage in Poland for the single parent and the one-earner married couple with children and at 85% and 102% of the average wage, respectively, in the Slovak Republic. 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 single parents and/or one-earner married couples with two children earning 50% of the average wage 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 across the earnings distribution, as no personal income tax is payable in the income range considered. For households with two children in Colombia, the marginal tax rate is zero across the whole income range with the exception of a spike at 216% 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 40.3% on earnings below 133% of the AW, 46.1% on earnings at 133% of the AW and 47.8% on earnings up to 250% of the AW. In the Slovak Republic, the marginal tax wedge for the single worker is 46.9% on earnings below 149% of the AW, 47.3% on earnings at 149% and then 50.1% on earnings from 150% to 250% of the AW. In Türkiye, the marginal tax wedge for all household types is 48.3% on earnings up to 168% of the AW, 51.4% on earnings at 169% of the AW, and 54.0% on earnings from 170% 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 (207%), the Netherlands (116%) and Spain (181%). Marginal employee SSC rates fall to zero in Austria (at 144% of the AW), Germany (145%), the Netherlands (198%), Spain (181%) and Sweden (117%). In Canada, the marginal employee SSC rate falls to zero at 88% of the AW. However, two spikes are observed at 78% and 218% of the AW. The Ontario Health premium 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 43% of the AW; in Japan, where the marginal employee and employer SSC rates drop from 12.7% to 5.2% and from 13.5% to 6.1% respectively on earnings above 135% of the AW; in Luxembourg, where the marginal employee SSC rate drops from 11.0% to 1.40% on earnings above 205% of the AW; in Poland, where the employee and employer SSCs rate drops from 15.3% to 10.8% and from 14.0% to 3.6% respectively on earnings above 245% of the AW; in the United Kingdom, where the marginal employee SSC rate drops from 7.0% to 1.7% of earnings above 88% 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 238% of the AW.
In Slovenia, the marginal employer SSCs are negative up to 56% 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.
Workers face net personal marginal tax rates and wedges of 70% or more in several of OECD countries at specific earnings levels. This is the case for taxpayers without children in Australia, Austria, Belgium, Canada, Chile, France, Italy, Japan, Luxembourg, Mexico, Slovenia, Spain and the United Kingdom. They also apply to households with children in Australia, Austria, Belgium, Canada, Chile, Colombia, Czechia, France, Greece, Ireland, Italy, Japan, Korea, Lithuania, Luxembourg, Mexico, Portugal, 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.
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← 1. The marginal tax wedge shown in the Figures is calculated in a slightly different manner than the marginal tax rates that are included in the rest of the Taxing Wages publication. In Taxing Wages, marginal rates are usually calculated by increasing gross earnings by one currency unit (except for the spouse in the one-earner married couple whose earnings increase by 67% of the average wage). However, the ‘+1 currency unit’ approach requires the calculation of marginal rates for every single currency unit within the income range included in the graphs. It otherwise would not be correct to draw a line through the different data points because the data for the income levels in between the different points would be missing. In order to reduce the required number of calculations, the marginal rates shown in this chapter are calculated by increasing gross earnings by 1% of the average wage – each line in the graph therefore consists of 200 data points – instead of 1 currency unit.
← 2. Although it is not visible on the charts, the central government income tax was negative for income levels below 46% of the average wage for the single parent and the married couple with or without children.
← 3. In Colombia, the general social security system for healthcare is financed by public and private funds. The pension system is a hybrid of two different systems: a defined contribution, fully-funded pension system; and a pay-as-you-go system. Each of those contributions is mandatory and more than 50% of total contributions are made to privately managed funds. Therefore, they are considered to be non-tax compulsory payments (NTCPs) (further information is available in the country details in Part II of the report). In addition, in Colombia, all payments for employment risk are made to privately managed funds and are considered to be NTCPs. Other countries also have NTCPs (please see https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-policy/non-tax-compulsory-payments.pdf).