From April, the personal tax allowance will rise to £10,600, meaning that 27m workers will benefit from a tax cut, while 3.5m will pay no income tax at all.
Anyone earning the average annual salary (currently £27,200) will benefit from the equivalent of a ten-week income tax break.
By raising the tax threshold, Liberal Democrats are giving workers an £825 tax cut this year.
Increasing the personal tax allowance to £10,000 was on the front page of the Liberal Democrat 2010 manifesto. It was also something the Conservatives said was not affordable - but thanks to work of Liberal Democrats in government, millions of workers are able to take home more of their hard earned cash.
Liberal Democrat Leader and Deputy Prime Minister Nick Clegg said: "As people count the cost of Christmas, I'm proud to say the Liberal Democrats in Government have delivered the biggest cut in income tax for a generation, helping millions of people keep more of their hard earned wages. This is vital to helping build a stronger economy because it is fair, with those on average and lower incomes benefitting the most.
"In 2010, raising the income tax threshold to £10,000 was a Liberal Democrat promise on the front page of our manifesto which we have delivered and now surpassed. The Conservatives had to be brought along kicking and screaming and were reluctant to introduce this tax cut. As for Labour, their promises for low and middle income workers are vague and uncosted. Labour just can't be trusted with the economy.
"Millions benefit from the raising of the tax threshold. However, those on lower incomes benefit the most, with over 3.5 million people taken out of paying income tax altogether under the new threshold. By April 2015 there will be 27 million people who will gain from paying less income tax."