I know people who still repeat the line that earning more money will push them into a higher tax bracket and they’d end up with less money than if they stayed at their current income.
So, there are some misconceptions about this on both sides. While some may misunderstand how tax brackets work, there absolutely are certain income thresholds where barely going over a certain amount will net you less money overall.
Edit: To clarify, you should accept the raise. In most cases all you need to do to avoid “losing money” at any of these points is to lower your AGI by contributing to an IRA, 401K, etc.
For example (using 2025 numbers here for a single filer):
EITC (Earned Income Tax Credit)
@~$50k (if you have 1 kid) you miss out on a $4k tax credit. So there’s no point to getting a raise that puts you between $50k and $54k (don’t actually reject the raise, just make sure you lower your income by contributing to an IRA or something like that).
https://www.nerdwallet.com/article/taxes/can-you-take-earned-income-tax-credit
Medicare Premium Increase (for those on medicare)
@ $106k your medicare tax increases by $888, so you don’t want a raise that puts you between $106k and $~107k
@ $133k medicare tax increases by $1.3k, so you don’t want a raise between $133k and $134k
@ $167k medicare tax increases by $1.3k again
@ $200k medicare tax increases by $1.3k again
@ $500k medicare tax increases by $444…
https://www.nerdwallet.com/article/insurance/medicare/what-is-the-medicare-irmaa
Roth IRA
@ $150k you start to lose out on benefits from having a Roth IRA
@ $165k you can no longer contribute to a Roth IRA, so if you’re close to this limit, you’re going to do what you can to stay under this income bracket as much as possible (contribute to an HSA, 401k, IRA, etc).
https://www.nerdwallet.com/article/investing/roth-ira-contribution-limits
The higher rate gets charged only on the portion above the threshold. So with those rates someone earning 192k pays ($191k * .24) + ($1k * .32) = $46,100 not ($192k * .32) = $61,400.
Where you can be worse off earning more is if it puts you over a threshold for some social services (food stamps for example) with a hard cutoff rather than progressively lower benefits.
In places with marginal tax brackets, no. The numbers are different where I live, but the principle (hah) is the same:
If you earn 291k a year, the first 191k is taxed at 24%. The money left over (100k) gets taxed at 32%. So if you get a raise or bonus, the “tax problem” is only that your extra money is immediately taxed at 32%.
I know people who still repeat the line that earning more money will push them into a higher tax bracket and they’d end up with less money than if they stayed at their current income.
Oh man don’t even get me started on that one too. I knew some people that genuinely thought a bonus would make them earn less overall.
If i was a manager and someone turned down a raise/bonus because “tax” reasons, i would seriously evaluate my own managerial skills…
Like, how did i not notice this person is a complete moron and why did i offer them a raise?
So, there are some misconceptions about this on both sides. While some may misunderstand how tax brackets work, there absolutely are certain income thresholds where barely going over a certain amount will net you less money overall.
Edit: To clarify, you should accept the raise. In most cases all you need to do to avoid “losing money” at any of these points is to lower your AGI by contributing to an IRA, 401K, etc.
For example (using 2025 numbers here for a single filer):
@ $106k your medicare tax increases by $888, so you don’t want a raise that puts you between $106k and $~107k
@ $133k medicare tax increases by $1.3k, so you don’t want a raise between $133k and $134k
@ $167k medicare tax increases by $1.3k again
@ $200k medicare tax increases by $1.3k again
@ $500k medicare tax increases by $444… https://www.nerdwallet.com/article/insurance/medicare/what-is-the-medicare-irmaa
There are probably a few other taxes/credits I didn’t include, but this is just a quick example with what I could look up at the moment.
Isn’t this possible? Tax brackets for 2024 I thought for single filer is 24% below 191k and 32% over 191k, isn’t it?
The higher rate gets charged only on the portion above the threshold. So with those rates someone earning 192k pays ($191k * .24) + ($1k * .32) = $46,100 not ($192k * .32) = $61,400.
Where you can be worse off earning more is if it puts you over a threshold for some social services (food stamps for example) with a hard cutoff rather than progressively lower benefits.
Thank you for explaining!
In places with marginal tax brackets, no. The numbers are different where I live, but the principle (hah) is the same:
If you earn 291k a year, the first 191k is taxed at 24%. The money left over (100k) gets taxed at 32%. So if you get a raise or bonus, the “tax problem” is only that your extra money is immediately taxed at 32%.