Tax glossary

Plain-language definitions of the payroll-tax terms used throughout this site. Each entry explains what the term means, when it applies, and which calculator pages use it.

• Gross pay

  The total annual salary before any tax, social-insurance, or pension deductions are taken out.

• Net pay (take-home)

  The amount actually deposited in the employee's bank account after every statutory deduction.

• Marginal tax rate

  The percentage paid in tax on the next unit of income earned — distinct from the average effective rate.

• Effective tax rate

  Total deductions divided by gross pay — the single percentage that summarises the overall tax bite.

• PAYE (Pay As You Earn)

  The UK system for collecting income tax + National Insurance directly from payroll each month.

• National Insurance (UK)

  The UK's second payroll tax — funds the state pension, NHS, and unemployment benefits.

• FICA (Social Security + Medicare)

  The US payroll tax that funds Social Security and Medicare — flat-rate, applies before federal income tax.

• IRPF (Spanish income tax)

  Spain's progressive income tax — split between a state and a regional (Comunidad Autónoma) component.

• Grundfreibetrag (German basic tax-free allowance)

  The annual income amount that is fully exempt from German income tax — €12,348 for 2026.

• Steuerklasse (German tax class)

  One of six categories that determines how much Lohnsteuer is withheld each month from German payroll.

• Spitzensteuersatz (German top marginal rate)

  The 42% peak marginal rate of German income tax — kicks in around €68,481 of taxable income (2026).

• PAS (Prélèvement à la Source)

  The French withholding-tax system — collects income tax monthly via payroll, like UK PAYE.

• CSG + CRDS (French social-contribution levies)

  Two French levies — CSG (~9.2%) + CRDS (0.5%) — funded by gross pay before income tax.

• Tranche (French / Spanish income-tax band)

  A discrete income range with a fixed marginal tax rate — the French / Spanish equivalent of a UK tax band.

• Mínimo personal (Spanish personal minimum)

  The Spanish income-tax-free personal allowance — €5,550 for a single individual under 65.

• Seguridad Social (Spanish social security)

  Spain's social-insurance scheme — 6.35% employee contribution on brut up to the base máxima.

• Standard deduction (US federal)

  The flat amount subtracted from gross income before federal-income-tax brackets apply — $15,000 single (2025).

• Social Security wage base (US FICA cap)

  The annual ceiling above which the 6.2% Social Security portion of FICA stops applying — $176,100 (2025).

• Sozialversicherung (German social insurance)

  Germany's four-branch mandatory social insurance — KV, RV, AV, PV — funded by ~20% combined employee + employer share each.

• Kirchensteuer (German church tax)

  Opt-in 8–9% surcharge on income tax that funds the Catholic or Protestant church in Germany. Tied to declared religious affiliation.

• Solidaritätszuschlag (German solidarity surcharge)

  A 5.5% surcharge on Lohnsteuer that funds federal reconstruction priorities — now applies only to high earners after the 2021 reform.

• Salary sacrifice (UK)

  A UK arrangement where an employee gives up part of their gross salary in return for an employer-funded benefit — typically pension contributions, reducing both income tax and NI.

• Quotient familial (French household tax-quotient)

  The French mechanism that divides taxable household income by a number of "parts" before applying tax brackets — gives married couples and families a substantial discount vs single filers.

• Pre-tax 401(k) (US retirement savings)

  A US employer-sponsored retirement plan where contributions reduce taxable income today and are taxed on withdrawal — annual limit $23,500 for 2025 (+$7,500 catch-up at 50+).

• Median salary

  The salary level at which exactly half of workers in a population earn more and half earn less — distinct from the (typically higher) mean.

• Tax year

  The 12-month period over which annual tax is computed — calendar year in most countries, April-to-April in the UK.

• Personal Allowance (UK)

  The slice of annual UK income that is not subject to income tax — £12,570 for 2025/26.

• Higher-rate threshold (UK)

  The UK income level at which the 40% higher-rate income-tax band begins — £50,270 for 2025/26.

• Social Security tax (US)

  The 6.2% US payroll tax that funds Social Security retirement and disability — capped at the annual wage base.

• Medicare tax (US)

  The 1.45% US payroll tax that funds Medicare — no wage cap, plus a 0.9% additional surcharge above $200,000.

• Flat tax

  A tax system that applies a single rate to all income — used by 11 US states and a handful of European countries.

• Mini-job (Germany)

  A German employment form with reduced taxes and social contributions, capped at €556/month gross since 2024.

• Employer contributions

  The portion of payroll taxes paid by the employer on top of gross salary — not part of take-home but part of total labour cost.

• Progressive tax

  A tax system in which marginal rates rise as income increases — used for national income tax in every country on this site except some US states.

• Tax wedge

  The OECD measure of the gap between an employee’s total labour cost and their net take-home — capturing both employee and employer contributions.

• Bonus tax

  How discretionary bonuses are taxed at the marginal rate — often higher than the regular paycheck because the bonus pushes through a bracket.