We have all probably heard people say "I received a raise at work, but it doesn't matter because I'll just be paying more in taxes." This comment is usually in reference to a small raise.

Is there any way that someone would actually receive less or the same amount of net income, due to an increased tax burden?


This notion typically stems from a misunderstanding of our progressive income tax. The bracket rate only applies to the taxable income within that bracket, so if you earn more, only the extra money is taxed at the higher rate. If an individual had taxable income of $9,625, they'd pay 10% on the first $9,525 and 12% on $100. If they had $82,600 in taxable income, they'd pay 10% on the first $9,525, 12% on the next $29,175, 22% on the next $43,800, and 24% on the last $100.

Rate    Individuals
10%     Up to $9,525
12%     $9,526 to $38,700
22%     $38,701 to $82,500
24%     $82,501 to $157,500
32%     $157,501 to $200,000
35%     $200,001 to $500,000
37%     over $500,000

So, in general, no, increased income is not entirely offset by increased taxes. There are edge cases where increased income would mean you no longer qualify for certain programs/benefits that could result in a decrease your net income. Many deductions have phase outs to avoid creating cliffs, but I'm pretty confident some still exist, hopefully someone else knows of some examples offhand.


If you have health insurance through the healthcare.gov exchange and you cross the 400% FPL Cliff.


Federal income taxes in the United states are not calculated as an exact percentage of your income. Instead, the tax in broken down into $25 blocks from $0-$3000 of income, and $50 blocks up to $99,000 in income, it is strictly percentage based after that. You can find this tax information in the tax tables published each year: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Therefore, if you are at the high end of your $50 taxable income range, say you make $51,749, you would pay $8670 in taxes (filing single) and your post-tax income would be $43,079. If you received a $2 raise and you now earn $51,751 you would pay $8683 and your post-tax income would be $43,068. Your "$2 raise" cost you $11.

But this only works out for small raises that push you into a new $50 block. Any raise of $15 or more is never going to result in a decrease in post-tax income because of this method.

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