Nick Clegg says he is pushing his Tory coalition partners to agree to cut income tax bills by another £100.
The government has repeatedly raised the personal allowance – the amount people can earn before paying income tax – since the 2010 election.
The threshold is due to reach £10,000 in 2014/15 but Mr Clegg wants to make it £10,500 from 2015 – a move that would cost the Treasury £1bn.
Conservatives said they would consider it but any changes must be “paid for”.
Deputy prime minister and Lib Dem leader Mr Clegg said raising the personal allowance to £10,000 – a tax cut “worth £700 to millions of people” – was a “huge step” which he had been campaigning on for years.
And he said he wanted to raise the threshold by another £500 as a “workers’ bonus”.
The cut would be worth £100 a year to 24 million ordinary rate taxpayers, while taking around half a million people out of income tax altogether.
Mr Clegg said his preferred method of paying for the tax cut would be to raise taxes on the “super wealthy” through a “mansion tax” but he said the Conservatives would not agree to this.
He told the BBC’s Andrew Marr programme “we will find other ways” to fund the policy.
“It’s not agreed yet. It’s something I would like to see us deliver as a coalition government in the next budget,” he added.
The basic rate of income tax is 20% so an extra £500 on the personal allowance would cut tax by £100 for anyone earning £10,500 or more, though people earning over £100,000 get reduced personal allowance or none at all.
Mr Clegg said the Liberal Democrats’ “long-term ambition” was to “make sure no one pays any income tax on the equivalent of the minimum wage, which is around £12,500”.
The personal allowance for under 65s was £6,475 when the coalition came to power and it has risen in each of the last three tax years to its current level of £9,440.
The government has already agreed to raise it to £10,000 from April, and Mr Clegg’s latest proposal would take effect in April 2015 – just before the next general election.
Some Lib Dems are angry at what they say are “blatant” attempts by the Tories to claim credit for raising the personal allowance – an idea they say was rejected by David Cameron before the 2010 election.
For Labour, shadow treasury chief secretary Chris Leslie said the coalition’s changes had left working families worse off overall and called for Mr Clegg to explain how he would pay for the proposal.
“Working people facing a cost-of-living crisis need help right now, but Nick Clegg’s government has instead prioritised a huge tax cut for those earning over £150,000,” he said.
“When it comes to people on middle and low incomes, the government is giving with one hand but taking away much more with the other.”
While the basic personal allowance rate has been rising under the coalition government, the level at which “higher rate” 40% tax is payable has been reduced in steps from £37,400 when the coalition came to power to £32,011 now (payable on income above the personal allowance).
The “additional rate” – 50% of earnings over £150,000 – introduced by Labour just before the 2010 election was reduced to 45% by the current government in April this year.
People aged 65 and over get a higher personal allowance. The current personal allowance is £10,500 for 65 to 74-year-olds and £10,660 for people aged 75 and over. From April 2013 the allowance for over-65s was frozen while that for under-65s went up. Those who turn 65 after 5 April 2013 do not get an extra allowance at all.
Income tax rates are the same across the UK, though the Scottish Parliament is expected to set rates there from 2016 under powers given by the 2012 Scotland Act.