Raises are Good

[livingdeb]

Marginal tax rates

Many people mistakenly think that if you get a raise that pushes you into the next federal tax bracket, your take-home pay might actually go down. (I just read that more than half of Americans polled don't understand how tax brackets work, and I was also recently surprised to learn that I know (at least) one of those people!)

What actually happens is that only the part of your income beyond that tax threshold is taxed at the higher level. All the money below that threshold is still taxed at the lower rate(s).

Getting less money

Now, if you're used to seeing, say 70% of your raise in your paycheck, once you pass a new threshhold, that percentage you see will be lower. But it will not be negative--you will still get more money.

Also, there are some welfare programs that disappear as your income increases, and this can absolutely lead to a lower net income.

Comments

[reedrover]

Yes. I appreciate my parents walking me through this concept when I started paying income taxes (at fourteen). I didn’t get out of the minimum bracket for a long while, but at least I understood what I was doing.