Quote:
Originally posted by calf@Aug 4 2004, 10:23 AM
How do you lose money when you get a raise under the marginal tax system?? The raise might not look as sweet, but you don't lose money
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If you're close to a tax boundary, it is possible to lose take-home pay if you get a raise. Take this example:
Make $35,000 per year. You're just at the lowest tax bracket of 16%. This means you pay $5,600 in taxes and take home $29,400.
You have a good year and get a 5% raise. Your new salary is $36,750. Now though, you're in the next tax bracket of 22%. This means you now pay $8,085 in taxes and take home $28,665.
Thus, on a $1,750 raise, you take home $735 less.
Now, say you've had a really good year and get a 10% raise instead. Your new salary is $38,500. You're now in the next tax bracket of 22%. This means you now pay $8,470 in taxes and take home $30,030.
Thus, on a $3,500 raise, you take home a measly $630 more.
Granted, most people fall in the middle of the tax brackets, but there still are those that get screwed by being "rewarded".