How Getting A Raise Affects Your Taxes

Photo: Ben_in_london

You've finally received a hard-earned raise. Unfortunately, that raise has bumped you into the next tax bracket. Does that mean you should tell your employer you don't want the raise after all?

If all of your income is going to be taxed at a higher rate, with your new raise, you're actually going to take home a smaller paycheck. Right?

Fortunately, this statement isn't true, but it's a common misconception about how our progressive federal income tax system works. While people are taxed at higher rates when they earn higher levels of employment income, only a portion of their income, not all of their income, is taxed at the higher rate.

Learn how the system really works in my Financial Edge article for Investopedia, How Getting A Raise Affects Your Taxes.

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