TaxFoundation tax-burden-on-labor: Annual publication of A Comparison of the Tax Burden on Labor in OECD Countries https: taxfoundation org publications comparison-tax-burden-labor-oecd

The TCJA’s lowering of most individual income tax rates, along with several other changes, reduced tax bills for 80 percent of taxpayers in 2018. The average combined (employee and employer) payroll tax rate in the OECD was 22.7 percent in 2015, which was 7.6 points higher than the U.S.’s combined rate of 15.1 percent. This is followed by Hungary with a payroll tax burden of 36.6 percent, and Austria with a payroll tax burden of 36.4 percent. These three countries’ payroll tax burdens alone are greater than the total tax burden on laborers in the United States.

• Between 2021 and 2022, the tax wedge increased in 23 OECD countries, fell in eleven countries and remained at the same level for the average worker in Chile, Colombia, Costa Rica and Finland.
• Also, contributions to pension, health, and employment risk insurances are considered to be nontax compulsory payments and therefore are not included as taxes in the OECD publication.
• Although the U.S. has a progressive tax system and a relatively low tax burden compared to the OECD average, average-wage workers still pay about one-third of their wages in taxes.
• This is because employer social security contributions increase by 6 percentage points at this level of income.

An important point of detail is that “average worker” doesn’t mean “median worker” (and I misunderstood this myself until recently, for which my apologies). The “average worker” is a concept the OECD defines so that it can make a like-for-like comparison across different countries. So instead of the usual approach of taking the median of all full-time employment, it covers a specific mix of sectors, job-types and seniority levels, which are applied in the same way to each country. This is one of the reasons why pre-1979 datasets can’t be compared with later datasets. Overall, we’re paying more tax as a percentage of GDP than at any time since the 1940s – and most people believe they’re over-taxed.1See this Survation polling from November 2023, Table_Q4.

High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. Rates and several layers of social security contributions can create marginal tax rate spikes that can distort or change incentives to work. The amount of income tax paid typically also depends on whether the taxpayer is filing as single or as a family, as most countries allow for some targeted tax relief for families with children.

responses to “Are UK workers over-taxed? The answer in three infographics”

Even here in the United States, which has a lower tax burden than most other OECD countries, average workers end up paying nearly one-third of their incomes in taxes. It is true that governments in the OECD, especially European countries, provide more government programs. Employer-side payroll taxes are less transparent than employee-side payroll taxes, as employers remit the check to the government, but employees pay the cost through lower wages. Slovenia had the highest employee-side payroll taxes in the OECD at 19 percent, followed by Germany (17.1 percent) and Poland (15.2 percent).

Table 2. Tax Wedge of a Single Worker with No Children Earning a Nation’s Average Wage, 2023

Mexico has seen the highest increase in its tax wedge since 2000, with an additional tax burden of 7.5 percentage points. While payroll taxes relative to total labor costs have roughly stayed the same in Mexico, income taxes as a percent of total labor costs have increased from 0.9 percent in 2000 to 8.5 percent in 2019. This is a combination of personal income taxes with both employer- and employee-paid payroll and social security taxes, minus any cash benefits received by the taxpayer. OECD calculated the average tax wedge for various family types in each of the 34 OECD countries.

One Big Beautiful Bill Act Makes the Individual Income Tax More Complex

This represents a fall of 0.16% from 2017, the fourth consecutive annual decrease in the tax wedge on the average OECD worker. South Korea has seen the highest increase in its tax wedge since 2000, with an additional tax burden of 8.2 percentage points. Payroll and income taxes have increased by 4.9 and 4.6 percentage points since 2000. While payroll taxes relative to total labor costs have roughly stayed the same in Mexico, income taxes as a percent of total labor costs have increased from 1 percent in 2000 to 9.6 percent in 2023. The tax wedge for the average single worker in Italy increased by 0,1 percentage points, from 45,0% in 2022 to 45,1% in 2023. In 2023, Italy had the fifth highest tax wedge among the 38 OECD member countries, maintaining the same position as in 2022.

• The VAT rates and the VAT revenue ratio (VRR) used in this publication are from the OECD’s “What drives consumption tax revenues?
• This represents a fall of 0.16% from 2017, the fourth consecutive annual decrease in the tax wedge on the average OECD worker.
• Employers in France paid 26.7% of labour costs in social security contributions, the highest amongst OECD countries.
• In Estonia (1.54 p.p.), the increase was due to the progressivity of the tax allowance.
• Unlike the tax wedge in many OECD countries, the U.S. tax wedge does not include a value-added tax (VAT) on consumption.

While in Austria, Belgium, France, Germany and Italy, the tax wedge as a percentage of labour costs was more than 45%, it was lower than 20% in Chile and Colombia. The highest tax wedge was observed in Belgium (53.0%) and the lowest in Colombia (0.0%). The OECD then divides this figure by the total labor cost of this average worker, or what the worker could have earned in the absence of these three taxes.

The Individual Income Tax

In many countries, individuals also pay a value-added tax (VAT) on their consumption. Although the United States does not have a VAT, state sales taxes also work to diminish the purchasing power of earnings. Although the United States does not have a VAT, state sales taxes also diminish the purchasing power of earnings. Tax burdens for the three household types have followed a similar trend over this period, with the lowest tax wedges for each observed in 2009 during the Global Financial Crisis and in 2020 and 2021 due to the COVID-19 pandemic.

Poland has the largest disparity between the two tax wedges, at 21.6 percentage points, between its 34.8 percent wedge for single workers and 13.2 percent wedge for families. Chile and Mexico are the only countries oecd income tax wedge chart that do not provide any tax relief for families with children but they keep the average tax wedge low. For the second consecutive year, the only household type for which effective tax rates fell in 2024 was a single parent earning 67% of the average wage.

Dividend Tax Rates in Europe, 2025

The recent bump downwards in 2024 was caused by Jeremy Hunt’s cut in employee national insurance, which took tax wedge from 31.3% to 29.4%. The tick up to 31.4% in 2025 is thanks to the rise in employer national insurance in the October 2024 Budget. Population refers to the demographic characteristics, including size, composition, and distribution of its inhabitants.

As described above, the tax components of the tax wedge ratios for each country and across countries are markedly different from the total tax wedge ratios in some cases. In Germany, too, the tax component of the tax wedge ratio is significantly smaller than the total tax wedge ratio. Here, the tax component of the tax wedge ratio and the total tax wedge ratio are above average by international standards. For multi-person households with one earner, Germany’s position in the ranking is more favourable. In order to classify the tax wedge as adequately as possible, account would need to be taken of the fact that parts of social security contributions can be viewed more as mandatory provisions.

The average wedge for families, defined as a one-earner married couple with two children, was 24.4 percent in 2020, compared to an average tax wedge of 34.6 percent for single workers without children. The new OECD analysis provides cross-country comparison of the labour tax wedge, which measures total taxes on labour paid by both employees and employers, minus cash benefits received by working families, as a percentage of labour costs. The report looks at eight stylised household types, which vary by income level and household composition. The average wedge for families, defined as a one-earner married couple with two children, was 25.7 percent in 2023, compared to an average tax wedge of 34.8 percent for single workers without children. And employee payroll taxes accounted for a larger share of the tax burden on labor than employer payroll taxes in seven OECD countries—Chile, Germany, Hungary, Israel, Lithuania, Poland, and Slovenia. Lithuania is the only country in the OECD that reformed payroll taxes by including the employer payroll tax in the total labor cost.

In Hungary and Poland, the decrease in the average tax wedge also exceeded 1 percentage point (-2.01 p.p. and -1.23 p.p., respectively). In 2020, the average tax wedge of the 27 countries covered in this map of Europe was 39.6 percent for a single worker without children, compared to the OECD average of 34.6 percent. Belgium had the highest tax burden on labor, at 51.5 percent (also the highest of all OECD countries), while Switzerland had the lowest tax burden, at 22.1 percent. Accounting for VAT rates and bases in OECD countries increased the tax burden on labor by 5.5 percentage points on average in 2020. A Canadian worker faces a marginal tax wedge of 63 percent for a 1 percent increase in gross earnings on top of the gross annual wage of $40,770.