How Progressive Income Tax Works (With Examples)
2026-02-14
Most European countries use progressive income tax: the more you earn, the higher the rate applied to the top slice of your income. Understanding two words — marginal and effective — clears up most of the confusion people have about their payslips.
Brackets, not a cliff
A tax bracket is a range of income taxed at one rate. Only the portion of your income inside that range is taxed at that rate — not your whole salary.
Imagine three brackets:
- 0% on the first €12,000 (the personal allowance)
- 20% on the next €38,000 (€12,000–€50,000)
- 40% on everything above €50,000
If you earn €60,000:
- €12,000 × 0% = €0
- €38,000 × 20% = €7,600
- €10,000 × 40% = €4,000
- Total income tax = €11,600
Marginal vs effective rate
- Your marginal rate is the rate on your last euro: here, 40%.
- Your effective rate is the average: €11,600 ÷ €60,000 ≈ 19.3%.
This is why "I got a raise and moved into a higher tax bracket" never means you lose money. Only the new slice is taxed at the higher rate; the rest stays exactly as before.
Allowances reduce taxable income
Most systems subtract an allowance before taxing. The UK's personal allowance (£12,570 for 2025/26) works this way, and it shrinks as income climbs above £100,000. The German Grundfreibetrag (€11,604) is a similar tax-free floor.
Social contributions sit on top
In most of Europe, income tax is only part of the deduction. Employee social contributions — health insurance, pension, unemployment — are often a separate line that can rival the income tax itself. That's why a country with a "low" income-tax scale (e.g. 15–20%) can still take 35%+ of gross once social contributions are included.
Check it yourself
The European Net Salary Estimator applies each country's brackets to a gross figure and shows the approximate take-home. For the UK, the Take-Home Pay calculator uses exact 2025/26 PAYE and National Insurance bands.
This is an educational explainer using simplified 2025/26 figures. It is not official tax advice — always verify against the relevant tax authority.