Posts Tagged "tax table"

Myth: "I don't want a raise! It will move me into a higher tax bracket and my take home pay will be less!"

Posted by Preet on Jul 30, 2007 | 6 comments

I’ve heard this many times, even from my beautiful mother! This is not true! Let’s bring up my SAMPLE tax table as a refresher:

$0-$10,000       = 0% Tax Rate

$10,000-$20,000 = 10% Tax Rate

$20,000-$50,000 = 20% Tax Rate

$50,000-$75,000 = 30% Tax Rate

$75,000+            = 50% Tax Rate

You will hear some people complain that they don’t want their next raise because it will move them into a higher tax bracket and reduce their takehome pay and they will have less money to spend. Okay, the Government does some interesting things but they’ve figured this one out a long time ago. Here’s how it works:  Let’s take someone earning $49,000. Their marginal tax rate is 20% in our example tax system. That DOES NOT MEAN they pay 20% x $49,000 in tax. They pay 0% on their first $10,000, 10% tax on the next $10,000, and 20% on the next $29,000. Let’s work that out:

(0% x $10,000) + (10% x $10,000) + (20% x $29,000) = $6,800 in tax

$49,000 Income – $6,800 tax = $42,200 TAKE HOME

So let’s say they get their raise to $50,001. The myth is that now instead of paying 20% on all their income, they pay 30% – which would reduce their take home pay by roughly $5,000! This could not be further from the truth! Let’s do the real math:

(0% x $10,000) + (10% x $10,000) + (20% x $30,000) + (30% x $1) = $7,000.30 in Tax

$50,0001 Income - $7,000.30 Tax = $43,000.70 TAKE HOME

Last time I checked, $43,000.70 is greater than $42,200! So feel free to ask for that next raise… :)

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