Many people fear that winning a raise will catapult them into a higher tax bracket, and they'll wind up worse off than they were before. This is a misunderstanding of how the progressive federal income tax system used in the U.S. works.

Those who receive salary increases might be taxed at a higher rate if the additional income pushes them into a higher marginal tax bracket. However♍, if it does, only the added income that falls into the higher tax bracket🃏 is subject to the increased tax rate.

How to Calculate How Much Tax You Owe

The more you earn, the more taxes you pay. That's a fact. But the 澳洲幸运5官方开奖结果体彩网:progressive tax rate takes somꦑe of the sting out of pulling in more cash.

First, take a look at the tax brackets and rates below for tax year 2024 (and 2025). You'll notice that while the tax rates stay the same, the levels of income per tax bracket change from one year to the next. This is due to the annual tax inflation adjustment administered by the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS).

The Marginal Tax Bracket

Your 澳洲幸运5官方开奖结果体彩网:marginal tax rate is the rate of tax that applies to each additional dollar of income earned over the previous bracket, or range of income. If you're single and earned $39,475 in 2024, your income fall⭕s into the 12% marginal tax bracket, as shown above for 2024.

Your 澳洲幸运5官方开奖结果体彩网:tax liability is determined by applying the various tax rates to your income as it falls within the different tax brackets. With a salary of ♊$39,475, it falls first into the 10% tax bracket and then the 12% tax bracket.

Calculate Your Tax Bill

To calculate your tax bill, 🧜look at the range of income within each bracket and apply the rate to that amount. So, for 2024 your tax bill would be:

10% of $11,600 = $1,160, plus

12% of the amount over $11,600, which is $27,874 ($39,475 - $11,601) = $3,345

Total bill for 2024: $1,160 + $3,345 = $4,505

While your marginal tax rate was 12%, your 澳洲幸运5官方开奖结果体彩网:effective tax rate, or the average rate of tax you paid on your total income, was lower. To calculate your effective tax rate, divide your 澳洲幸运5官方开奖结果体彩网:total tax by your total income. In this case, $4,505 ÷ $39,475 gives y🧔ou an effective tax rate of 11.41%.

Effect of Raise on Tax Bill

Now, let's see what would happen to your tax liability if you had gotten a $10,000 raise that elevated your annual income for 2024 from $39,475 to $49,475.

Per the tax bracket chart for 2024 above, you can see that your total income falls between $47,151 and $10𝐆0,525. Your $10,000 raise bumped you into the 22% tax bracket.

So, your🍌 202👍4 tax bill due to your raise would be:

10% of $11,600 = $1,160, plus

12% on the next $35,549 that you earned ($47,450 - $11,601) = $4,266, plus

22% on the final $2,324 of your salary ($49,475 - $47,151) = $511.

Total bill with $10,000 raise for 2024: $1,160 + $4,266 + $511 = $5,937

That gives you an effective tax rate of 12% ($5,937 ÷ $49,475).

Deductions and Credits

The aforementioned example doesn't account for the 澳洲幸运5官方开奖结果体彩网:deductions and credits that may potentially reduce your 澳洲幸运5官方开奖结果体彩网:taxable income. Every taxpayer can choose whether to take a 澳洲幸运5官方开奖结果体彩网:standard deduction or to 澳洲幸运5官方开奖结果体彩网:itemize deductions.

Standard Deduction

Single individuals who don't own their own homes probably don't have many deductions to itemize, so taking the standard deduction makes sense. In fact, the latest IRS information shows that over 88% of Americans take the standard deduction.

That means that, instead of paying tax on all $49,475 that you earn in the example above, you'd pay tax on the amount left after subtracting the standard deduction for 2024. For 澳洲幸运5官方开奖结果体彩网:single filers, that deduction amount is $14,600. For married couples filing jointly, it is $29,200. So, as a single filer, you'd pay tax on taxable income of $34,875 ($49,475 - $14,600).

For tax year 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly.

The Bottom Line

The progressive tax system is designed to levy different tax rates on different portions of an individual's income, imposing a higher rate only on income above a certain level.

If you get a raise, the additional amount will probably mean a higher tax bill even if it doesn't bump you into a higher tax bracket. But it's important to understand that the entirety of your income, whether you get a raise or not, is not subject to one, higher tax bracket rate. All in all, a raise is a cause for celebration and shouldn't be a source of angst.