Have you ever heard someone warn, “Don’t accept that raise, it’ll bump you into a higher tax bracket and you’ll take home less money”? This is a common misconception about how tax brackets actually work.
How Tax Brackets Actually Work
The U.S. operates on a progressive tax system. This means your income is taxed at different rates depending on how much you earn—but crucially, only the portion of your income that falls within each bracket is taxed at that bracket’s rate.
For example, suppose the tax brackets (simplified) look like this:
- 10% on income up to $10,000
- 12% on income between $10,001 and $40,000
- 22% on income above $40,000
If your income is $42,000, the first $10,000 is taxed at 10%, the next $30,000 at 12%, and only the last $2,000 at 22%. Your entire income does not suddenly get taxed at 22%.
Taking the Raise Always Benefits You
A raise will always increase your take-home pay, even if it pushes you into a higher tax bracket. The higher rate only applies to the additional income above the bracket threshold, not your entire salary.
Example
Let’s say you earn $39,000, and you get a raise to $42,000. Only the additional $2,000 above the $40,000 bracket is taxed at the higher rate. Everything else stays the same. You’ll still take home significantly more money, even after taxes.
Bottom Line
Don’t let tax bracket myths hold you back from financial growth. Accept that raise, pursue that promotion, and confidently grow your income—knowing the tax system is structured to reward you, not penalize you.
