Taxing Wages 2025: discover the OECD's annual study and its main conclusions, with Belgium still in first place!

​Decomposition of Personal Income Taxes and the Role of Tax Reliefs

This annual publication provides details of taxes paid on wages in OECD countries. This year’s edition focuses on the decomposition of personal income taxes and the role of tax reliefs, which can take the form of tax allowances or tax credits on the taxes levied by different levels of government. For the year 2024, the report also examines personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers, and cash benefits received by workers. It illustrates how these taxes and benefits are calculated in each member country and examines how they impact household incomes. The results also enable quantitative cross-country comparisons of labour cost levels and the overall tax and benefit position of single persons and families on different levels of earnings. The publication shows average and marginal effective tax rates on labour costs for eight different household types, which vary by income level and household composition (single persons, single parents, one or two earner couples with or without children). The average tax rates measure the part of gross wage earnings or labour costs taken in tax and social security contributions, both before and after cash benefits, and the marginal tax rates the part of a small increase of gross earnings or labour costs that is paid in these levies.

Executive Summary

Workers’ post-tax income increased in a majority of OECD countries in 2024 as real wages before tax grew and effective tax rates on labour were broadly unchanged. This followed two years in which high inflation and fiscal drag had weighed on workers’ take-home pay in many OECD countries, curtailing the recovery in post-tax incomes that followed the COVID-19 shock. Single-parent households with children remained a key focus for labour tax policy in 2024: as was also the case in 2023, this was the only household type for which the tax wedge1 declined on average across the OECD and for which the tax wedge remained below its pre-pandemic level.

The OECD average tax wedge increased on average for seven of the eight household types examined in Taxing Wages but for six of these household types the increase was no greater than 0.05 percentage points (p.p.). For a single worker earning the average wage, the OECD average tax wedge edged up by 0.05 p.p. from the level in 2023 to 34.9%; this was the third consecutive year in which the average tax wedge for this household type has risen, following two years of decline during the COVID-19 pandemic in 2020 and 2021.

The tax wedge for a single worker earning the average wage increased in 20 of the 38 OECD countries between 2023 and 2024, decreased in 15 and stayed the same in three. The increase in the tax wedge exceeded one percentage point in Italy (1.61 p.p.), where the average wage rose above the threshold for the reduced social security contribution rate in 2024, and in Slovenia (1.44 p.p.), due to the introduction of a flat-rate compulsory employees’ health insurance contribution. The decrease in the tax wedge for a single worker earning the average wage exceeded 1 p.p. in Finland (-1.57 p.p.), the United Kingdom (-1.74 p.p.) and Portugal (-1.75 p.p.). The decreases in Finland and the United Kingdom were due to a reduction in social security contributions, while in Portugal the main driver of the decrease was a revision of the tax schedule that reduced the tax rates applied to the first six brackets.

The OECD average tax wedge for a one-earner couple with two children at average wage levels rose by 0.16 p.p. to 25.8% in 2024, the largest increase among the household types, but declined in 20 countries. The difference between the OECD average tax wedge for this household type and that of the single worker earning the average wage narrowed by 0.11 p.p. to 9.2 p.p. in 2024, indicating a slight weakening of the fiscal advantage for households with children. The OECD average tax wedge for a two-earner couple with two children (one earning 100% of the average wage, the other earning 67% thereof) increased by 0.01 p.p. in 2024 to 29.5%. For this household type, the tax wedge decreased in 20 countries.

The only household for which the average tax wedge decreased in 2024 was the single parent of two children earning 67% of the average wage. This was also the only household type for which the OECD average tax wedge decreased in 2023, when it fell by 0.36 p.p. On average, the tax wedge for single parents decreased by 0.38 p.p. to 15.8% in 2024 and fell in 24 countries. Particularly large decreases in the tax wedge for this household type were observed in Poland (-7.2 p.p.) and Portugal (-4.1 p.p.), which in both cases was partly due to increases in the value of cash transfers for families with children.

The Report contains a Special Feature on decomposing personal income taxes, with a specific focus on tax credits and allowances. While most studies on the impact of personal income tax on progressivity and post-tax incomes focus on marginal tax rates, this Special Feature uses the Taxing Wages models for 2024 to show how credits and allowances interact with the tax schedule to affect the average tax rates of different household types and influence the progressivity of labour taxation in OECD countries. The analysis demonstrates that these instruments make a significant difference to households’ final post-tax net income and are a channel by which OECD countries reduce the tax liability of specific household types, in particular households with children. This is particularly the case for countries without other types of cash transfer, such as New Zealand; countries with relatively few tax brackets, such as the Slovak Republic; and countries with relatively high effective tax burdens on households without children, such as Belgium. The chapter also shows that credits and allowances collectively enhance the progressivity of labour taxation by between 28% and 44% depending on the household type, although credits tend to contribute more to the progressivity of PIT systems than allowances, especially when there is no means-testing mechanism to determine the amount of the relief.

Key findings

The average tax wedge for a single worker earning the average wage increased in a majority of countries in 2024