Every tax system has to decide where taxation begins. Some draw a line and charge nothing beneath it. Others charge from the first unit of income and hand money back through credits. The two approaches produce very different curves, and the choice explains more about a country's tax system than its top rate does.
Where income tax actually starts
The table shows the annual salary at which income tax first becomes payable, calculated on 2026 rules for a single employee with no children, including the effect of standard credits and deductions.
Approximations calculated from 2026 rules. Social contributions frequently start earlier than income tax and are not included here. Currency conversions use approximate mid-market rates for July 2026: 1 EUR equals 0.86 GBP, 1.16 USD, 1.60 CAD, 1.77 AUD, 1.95 NZD, 0.93 CHF, 7.46 DKK, 11.0 SEK, 11.7 NOK, 176 JPY, 1.50 SGD and 3.80 ILS.
Allowances and credits do different jobs
An allowance removes income from the tax base. It is worth your marginal rate: £12,570 of UK personal allowance saves a basic rate taxpayer £2,514 and a higher rate taxpayer £5,028.
A credit reduces the tax bill directly. It is worth the same to everyone: Ireland's combined personal and employee credits of €3,750 save exactly €3,750 whether you earn €25,000 or €250,000.
Credits are therefore more progressive by construction, and they are why Irish and Dutch take-home looks generous at modest salaries and considerably less so at high ones. The reversal is visible in what €60,000 leaves in Ireland compared with the same country's position in the six figure comparison.
Some countries do both, which is where the arithmetic gets awkward. The UK grants an allowance and then withdraws it above £100,000, producing a 60% effective band described in the £100,000 tax trap. The Netherlands grants credits and then phases them out at 6.51% of income, adding several points to the marginal rate across ordinary salaries.
The Nordic exception
Denmark, Norway and Sweden appear to tax from the very first unit of income, and in a mechanical sense they do.
Denmark deducts the 8% labour market contribution, AM-bidrag, from the first krone with no allowance. Income tax proper then applies above a personal allowance of around DKK 51,000. Norway charges its 22% flat income tax against a personal allowance of NOK 88,250 while national insurance applies above a lower exemption threshold. Sweden applies municipal tax from a modest grundavdrag that tapers with income.
So the headline is not quite fair, but the underlying point holds: the Nordic systems begin collecting far earlier in the income distribution than the Anglo-Saxon ones, and they compensate through transfers rather than through thresholds. The consequences at ordinary salary levels are worked through in Denmark's tax burden and Sweden's 52% headline.
Why social contributions matter more at the bottom
At low salaries, income tax is frequently the smaller deduction. Germany charges more than 21% in social contributions from the first euro above the midi-job band, with no allowance and no taper, which is why a German minimum wage worker keeps 71.1% of gross while a Dutch one keeps 95.1%, as the minimum wage comparison shows.
British National Insurance, by contrast, has a threshold aligned with the personal allowance, and Irish PRSI has a weekly floor. Where the contribution threshold sits matters more to a low earner than where the income tax threshold sits.
What it means in practice
- Part-time and second incomes. A high tax-free threshold makes part-time work efficient. In the Netherlands, Australia and Singapore, a second household income up to the threshold is close to untaxed.
- The first raise above the threshold. In countries with a wide zero band, the effective rate climbs steeply just above it. This is the single sharpest part of the curve in Australia and Austria.
- Comparing headline rates. A country with a 45% top rate and a €20,000 allowance can collect less overall than one with a 40% top rate and no allowance. The threshold is half the system.
Related: Average salaries after tax