Posted by The TaxAdvocate Group, LLC

How Does Getting a Raise Affect Your Taxes?

How Does Getting a Raise Affect Your Taxes?

After working so hard and waiting for it, you’ve finally gotten a raise, so yay!! But that raise has bumped you into a higher tax bracket because no, the IRS will charge you on your new increased income. So does this mean we shouldn’t aspire to get a raise? After all, you will still have to give up a part of it to the IRS and take home a smaller paycheck, right? 

Well, it isn’t exactly true that you shouldn’t aspire to earn more money. You’ve got to understand how the tax system with additional income works so you can tell how it affects your earnings when you get a raise. 

The more money you get, the more taxes you pay 

Yes, that is how the tax system works, and as you earn even more money, you get to pay higher tax rates. You pay taxes on your income if you are single and to file as an individual or jointly filing as a married couple. 

Here is an example; 

You pay a marginal tax rate on the next dollar of your income, and in this case, it is for the additional payment you earn as a raise you got at work. So let us assume that you are unmarried and you made $34,500 yearly before getting a raise. 

With that annual earning, you were at the 15% marginal tax group, and your tax liability was at $850 with 15% of the amount, which is $8,500. The amount you gained over $8,500 was $26,000. 

This means you owe about $3,900 in taxes on the $26,000 and $850 on the $8,500. This brings us to a total of $4,750 you should pay in taxes. 

Your marginal tax was at 15%, but your average tax rate on your total income will be lower. To arrive at your tax rate, you’ve got to divide the real tax rate by your total income. Using these numbers, it will be: 

$4,750/$34,500, which will give you an effective tax rate of 13.8%. 

Great! So what happens when you get a $10,000 raise at work which pegs your income at $44,500. Now, how much taxes do you owe with this newly increased income? 

Well, as you know, you already owe $4,750 on your previous $34,50o earnings, but now your income has increased to the $34,500 and $83,600 range, you have to pay a higher tax rate. Your $10,000 raise puts you in the 25% tax bracket. 

However, you are not expected to pay 25% on your entire raise, just as you didn’t pay 15% on your previous earnings. The 25% tax rate will be paid on the raise itself, which is $10,000. This is an additional $2,500 annual tax, and this gives you a total: 

$4,750 from first earnings + $2,500 from the raise = $7.250

You still have to think about the overall tax you will pay on your new total income (Previous earnings and rise combined). To get this number, you need to divide the new total income of $44,500 by your total tax of $7.250, and that is your effective tax rate which will be 16.3% as opposed to the 25% that came with your rise. 

With the rise, you will be taking an additional $7,500 yearly. You may not like the amount of money the government and the IRS take from your raise, but look on the bright side; you will be getting significantly more than you earned before the raise. 

The tax system is a progressive and upward one that enables you to pay a different amount of tax to varying stages of your earning power. What you pay as an entry-level staff will be further from the taxes you remit while at the apex of your organization. 

However, you wouldn’t have to pay a higher tax rate on all your earnings. You have the right to research and discover all the deductible tax opportunities that the IRS offers, and feel free to negotiate with the taxman when it is time. 

*All figures used in this section are for exemplary purposes to help you calculate YOUR taxes after getting a raise. 



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