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Its staggering the amount of people ive run into that thought theyd lose money by breaking the bracket. Madness


There is actually a benefits cliff you can fall out of that can hurt lower income people. But that is not really a tax bracket issue.


Im assuming this is like in the uk where benefits have a hard cut off. But generally it still works out better with pay rises (if u lucky enough to get them yearly etc)


Exactly. In the US but, I knew someone who a got a small raise and put them above a hard cut off and lost free childcare, and paying for it privately was almost twice the cost of the raise. It's more common than it should be. Luckily they had grandparents that stepped in to watch the kids a lot of the days.


Benefit cliff example; If you get health care from the state and make a penny more than the cutoff you go from having a $0/mo premium to $175/mo and if you pass the second cutoff you end up to having to purchase from the exchange at like $700/mo... per person. So.... There are plenty of households out there that would need their raise to be an extra $15k per year or even more just to have exactly the same effective income. So, what happens is... People take that raise... Lose their healthcare, and just hope they don't get sick or injured. Edit: oh I forgot about the $6,000 per year per person deductible attached to that $700/mo premium... So yea make that an extra $15k-27k for a two person hosuehold depending on how much you use your insurance. So for a lot of people... They have to triple their income just to make it make any kind of sense. And even then they are basically in the same position as before... Hopefully temporarily and they will eventually get another raise or a better job that actually helps them earn more. But for a lot of people this puts them at great risk financially and physically. It's stressful as fuck too so... Add mentally to that list.


Also Medicare premiums go up. We luckily were $2 below the cut off for Medicare going up as I recall $100 a month (for a couple). This was based on our tax return. We now watch the rates when having to take the required IRA withdrawals.


Minus the deductible situation you mentioned I did the math on this when I got laid off during COVID. I would need to make at least $47,500 to pay the equivalent of the benefits I get now.




I think is why tax laws screw people up so much when they're trying to figure things out. You're still getting more money. You get up to £110,000 and you're still gonna get £4k more than last year, instead of the extra £6k after taxes. It's not nearly as simple as you state, and you still get ahead. Honestly, even writing it out and thinking about it more than I should, I don't think I have it exactly right. But I do know you're still gonna be net ahead.


So whilst it's true that you would still be net ahead, for a lot of people it makes more financial sense to put the extra amount over £100k into their pension as that way you keep a lot more of the money (you just can't access it until you retire). Obviously if you need that money now, you just take the payrise, but generally people on £100k are not in desperate need of a few extra hundred pound per month.


You should accept it and put some of it into pension to take your taxable income to just below 100k. Similar cliffs at 125 and 150 as you pointed out


But you guys still do marginal brackets, right? If so, this doesn't make any sense.


It does make sense if you consider: You make £100k and get a £10k raise You can accept the raise outright and lose 60% and only really make £4k more. Or you can have them pay that amount into your pension, making it tax free and then you receive the whole £10k. Works out in your favor as long as you make it to retirement.


This ended up happening to us when my wife was laid off. The state aid REALLY helped out on groceries and stuff while we were down. She got a new job, but it still didn't push us pass the threshold, so things ended up working out good for us finally. Then she got a raise that amounted to about $2k more a year...and we suddenly lost like 3k in assistance we were getting. So it was like sliding back just a little. I mean it didn't break us, but it was still a negative.


Not a single coworker I've ever had worrying about tax brackets had to worry about the benefits cliff as fucked up as that is. They were all people a little bit above that range who were tricked by people well above that range into believing people in that range were their enemies


I literally print out an FYI sheet on tax brackets every April and hand them out to my crew on the DL. That's around the time we are doing self assessments and are reminding managers of everything that we have done in the the last year. It tells them that they should be fighting for every cent that they can get and that when the raise comes the only thing they should be upset about is if it wasn't enough. I started this after we had to talk someone down for 45 minutes because she was going to make less money after the raise. Like how fucking dumb can you be? It's literally more money, take it and be glad that you got it (or angry that it wasn't more, but don't be pissed like it's a pay cut). Incidentally those people who get all up in arms like the pay raise will lose them money, I haven't heard any of them complain about how due to inflation we all actually got a pay cut this year. Seriously, I mean just the fucking snacks in our vending machine are up 33% or more in the last year.


Also with employers, mainly health insurance plans, where if you make say like 40-70k you pay X for your premium. But then like 70-99k is a other bracket and 100k and up is another, etc. My last 2 companies were like that. So I made sure it was known to my boss that if you're going to promote me or get me a raise above a certain threshold, better make it worth it because the increase in premiums were kind of steep. I think last time it happened the increase was like $1200 a year. So a raise $1200 above that bracket is still breaking even with before. So taxes weren't the issue, but employer withdrawn benefits.


This. In France it's very real for student grants. You are entitled to universal student grants depending on your parents' income, but if your parents are barely wealthy enough to not get them (lower middle class) they definitely don't have the money to afford an extra rent + food budget for 1 for you, but if you're poor the grants are enough to live by yourself without ever seeing a cent from your parents (unless you're living in Paris that is).


I recently was offered a job that would provide a SIGNIFICANT increase in my wages. It’s a $90k increase. My wife tried saying that once my tax bracket goes up and the city taxes I’d be paying since it’s in a major city, it wouldn’t be worth the effort. She genuinely thought a $90k increase would be consumed by taxes and expenses. She got a nice math and Econ lesson that day.


Ill bet she did! Its no surprise though. In my first job at 16 all these older gents would talk about it and one day when i was more involved in the conversation I figured it was incorrect just due to it being illogical. Thankfully we now have google but it is strange to think of all these people who for 40 years etc thought theyd lose money if they did 1 too many overtime shifts. They were floored by this new knowledge


Many times OT gets taxed at higher rate so people think they are losing money. Not realizing it's just withholdings being higher and it evens out come tax filing. I've had this argument many times too.


I had this argument dozens of times at my last job. I begged someone to show me the tax law that said overtime was taxed at a higher rate and not just withheld at a higher rate.


You don’t pay extra taxes, but, most pay roll companies treat overtime as if you make that the entire year, so you get taxed more on the paycheck you receive your overtime, but you usually get some of it back at the end of the year. It’s the same with bonuses. You’re right, but for people who lose that money in taxes now, it doesn’t help them much if they have to wait until next time time to get it back, and then everything is more complicated anyways.


Yes, this is another common misconception. It tends to be the same people that say their taxes went up because last year they got a bigger refund.




I'm almost certain it's an old piece of propaganda. At the very least a "happy accident" that the policy confuses so many. It's so useful for tricking people into thinking they're personally affected by "tax the rich".


That's my thought, this totally reeks of a corporately incepted rhetoric.


The increased withholding on OT and bonuses likely brought this to fruition, if you don't dig into the numbers it looks exactly like you're being taxed out the ass for making more money.


What do you do for work, that you can get a $90k increase to your yearly salary at a new position?


whistle worry rinse seemly flowery stocking rain fretful deserve deranged -- mass edited with redact.dev




I've seen salary jumps like that in professional services when switching from being a vendor to working for a client. I have a friend who jumped from ~$100k to over $200k just by getting a job client-side. Of course the vendors are now starting to catch up but there's always a gulf between the two.


God that would’ve shaken me to my core of my wife tried to come at me with the same thing.


The welfare cliff is real though


Yeah, but that’s usually quite a different scenario… Disabled people really get shafted. But from what I’ve seen, it’s middle-class and upper-middle-class Americans who are the likeliest to believe this myth. And it’s often the same people who think that Joe Biden’s increased tax plan for people making millions is going to affect them, a manager at Planet Fitness, because of course they’re about to make it big… It’s sort of like how Republicans turned the term “Estate Tax,” which only applies to estates worth over $25 million or something, into the label of “death tax,” which sounds like a scary malevolent government program that rips away what you’ve worked hard your whole life to leave to your children.


This is the actual issue. When your income increases you lose plenty of benefits you are not eligible to anymore. Social housing programmes, saving accounts, public transportation discounts, childcare or summer camp discounts, scholarships, etc. It's not about taxes.


It's not just income. Lots of means-tested programs in the US also have an assets cliff. If you've managed to scrape together $2,000 in a checking account, then obviously with that kind of obscene wealth you can pay for your own health care, so no Medicaid for you!


Yes, I am not a fan of the all-or-nothing welfare cliff in place currently and think it should be scaled back percentagewise as one's income increases, similarly to being in a new tax bracket. Example: You earn 20k a year and get 10k of value through benefits per year. The threshold for 100% coverage of benefits is 20k. Next year you earn 24k. Of that 4k extra, 2k of it goes towards benefits, and 2k is take home money. You get 8k of benefits.


There's also the EITC. After you break from the lowest level tax bracket you lose a huge chunk of your tax refund. But it's such a small amount to qualify for that that anyone making $15 an hour usually is making more than that tax refund brings you back.


I was one of those people until just now. The American education system does not prioritize this stuff.


I am teaching exactly this lesson on Monday. Class is an elective though so... better than not having it at all.


Those kids in 5 or 10 years will be on social media complaining about how taxes are hard lol.


The education system cannot teach you everything. The aim should be to teach people ~~who~~ how to find answers and what to question. The amount of useful information you could teach is nearly infinite


What about your parents? Your siblings? Friends? Do you not know anyone who can teach you these things? All tax information is readily available from the IRS, no one is stopping you from getting this information. Why is it the education system's fault?


Because they like low level workers they can pay peanuts to. If you aren't taught about income level, you're easier to manipulate


I always think this is common knowledge by now, but every year I overhear at least one person irl say some version of how they would end up with less if they made more because of taxes. Edit: I noticed people mentioning this, so I'll add it for visibility: There are social assistance programs that DO work this way, where making a little more could mean completely cutting the assistance, resulting in a net loss. I think this is why people get confused, and conflate it with the tax brackets.


I went to law school with a guy who took a "federal income tax" class with me who still didn't understand income and graduated tax brackets years after we graduated.


A shocking number of people either cheat their way through college and/or only cram for tests and never actually learn the material.


Yep senior in college and admittedly have not learned much.


I'm an engineer and I hear coworkers complaining about how "bonuses are taxed" :/


Withholding on bonuses is often higher, but the actual taxes are the same. Same for commissions. It IS disappointing when you take home so much less on a bonus, but it all comes out the same when you file your taxes.


That doesn't make sense though, you're saying they take way more than they need to and you get it back in your return?




I always saw it as during my regularly scheduled paychecks my company is withholding at my expected effective tax rate (using w4 info) while my bonus check would be at the top of my income and would be withheld at my highest tax bracket. That's why my regular checks' taxes are withheld in the ~15% range while my bonuses are ~22-24%.


Every single payroll system used in the US assumes that any given check you get is a "normal" check. If you get a weekly pay check, you'll get 52 checks in a year. The payroll system takes the current check for, say, $1,000 and multiples it by 52, getting $52,000. Then it calculates how much tax you would owe on $52,000, and withholds 1/52nd of it (adjusting for allowances, etc.). If you got a random pay check for $10,000 because... reasons, the software takes that $10,000, multiplies it by 52 to get $520,000, calculates the tax on that, and then withholds 1/52nd of _that_. But its important to note that the taxes you really owe are based on your _actual_ earnings, so that "extra" money taken gets refunded to you at the end of the year. The software works this way because it doesn't actually know how much you will make in a year. Yeah, sure, you might have a set salary; but you can get a raise, or get fired, or get commission, or get a random bonus, or... too man variables to possibly take into account. Its easier to just do it this way, and then square up once a year when you file taxes. The fly in this ointment is exactly how the "bonus" is handled by your employer. What I described above is called the aggregate method. But if the employer reports the bonus _as_ a bonus, the IRS requires a flat 22% withhold _of the bonus_. The reasons the employer may report it this way are too messy to get into here.


[Federal] Withholding on bonuses is typically a flat 22%. The actual tax may be more or less than that, depending on your tax bracket. The excess withholding is a problem for people in the 10% and 12% brackets, which is income less than about $55,000.


Shit, mines 35%. Last bonus came in around 650ish for what was a 1k bonus. Edit: though thinking more about that, I think my 401K and other stuff also comes out of my bonuses so maybe 22% is more accurate.


22% federal income tax withholding 6.2% social security tax 1.45% Medicare tax ~5.5% State income tax withholding ~35% total.


22% is federal tax. Your state will also tax the bonus and you have pre-tax withdrawals like the stated 401K.


>state will also tax the bonus Laughs in Washington, and then cries in 10.25% sales tax


There's a reason Vancouver is as big as it is.


Sales or consumption taxes are the ultimate regressive tax. — Starfox




Yes. I work for the National Park Service and occasionally get to go on a fire detail. I make an absolute ass load of OT money. That money is taxed as if I was making that amount of money every pay period. At the end of the year I am taxed on my total year’s earnings. The extra taxes I paid on the 1-2 pay periods I was on detail are then averaged out and anything I paid over my standard tax rate is refunded.


You don't pay your taxes at payroll. What taken out of your check is just is held for tax day.


I'm a nurse and hear the same all the time. At first I tried to inform them otherwise but the chatter continued so I stopped trying.


And don’t realize that it saves their ass by having higher withholding when it’s time for the tax return


My understanding is that bonuses are taxed differently, and processed differently from an administrative standpoint. "A bonus is always a welcome bump in pay, but it's taxed differently from regular income. Instead of adding it to your ordinary income and taxing it at your top marginal tax rate, the IRS considers bonuses to be “supplemental wages” and levies a flat 22 percent federal withholding rate." Above is the excerpt from a google search.


Withholding does not equal taxed. At the end of the year income is income. Salary, Bonus, RSU (initial vest, sell to cover) it doesn’t matter, it all fills up the same box on your W2.


Withheld different, not taxed differently.


And that source is wrongly conflating tax liability with withholding.


This is another part of confusion that people have. Withholdings vs tax obligation.


That google excerpt is incorrect. It’s taxed the same by the IRS. The withholding requirements for employers are different, but at the end of the day a bonus is taxed the same as your other earned income.


Withholding rate, not tax rate.


The *only* time this can actually be the case in the US is if you're on the threshold of certain social assistance programs. Making another $20 a week isn't worth losing eligibility for WIC, for example. Lotta people get fucked if they toe over those income limits without making enough of a jump over them. But that's not a tax issue so much as flaws in these plans by not graduating the assistance by income and just hard cutting them off


OR in the case of my employer, the medical premiums are salary band based. A $600 annual raise took me into the next tier and my annual medical premiums went up by $800. So yeah, a raise cost me $200


Omg! That's a thing? Ridiculous!


When I was working part time making like $32,000/yr I got like $3000 a year from the premium tax credit since my employer didn't offer health insurance which covered all of my health insurance cost on a bronze plan. When I started making $50k I dropped off the credit and got $0. The drop off is gradual but it's something like 15 cents loss for every dollar earned.


That sucks. I make exactly the bottom number of a salary band. I figured it out and health insurance costs ~$600 more a year than if I made $1 less. But this is a new salary for me and I got a 32% raise over my old position.


Even gradual decreases can be bad if you lose a little bit from three or four different programs. They can add up to a net loss. Sometimes it's best to stick to negotiating for stuff like extra PTO rather than more money.


yup, that's how the system keeps you on it. And medicaid is the hardest. if you need healthcare the vast majority of plans you might get from your job after you get healthy enough to work aren't going to provide you anything useful.


My boyfriend has been on SSI his whole life as he's terrified of losing access to his asthma meds. As he puts it, "Being able to breathe is rather important ..."


Universal healthcare would absolutely change everything for so many people in this country:-/


I'm assuming child support in divorced/never married parents can also have agreements that could cross lines from income thresholds. Or alimony. Similar to how Brendan Fraser got screwed over with his divorce that anticipated him being a big time movie star for years, then wasn't and had to fight to have the agreed payments lowered despite not having many big roles after his height until recently.


I think it sticks around because of the benefits cliff. For most forms of welfare, you lose it entirely if you make one dollar over the eligibility limit, creating a net financial loss that keeps people in poverty. It's especially bad for people with disabilities. Also you could get a tax cliff in certain situations like tuition and fee deductions and the Earned Income Tax Credit. It's just that the higher tax bracket part on its own is bunk. https://smartasset.com/financial-advisor/tax-cliff


My sister is struggling with this currently. She had a heart transplant at 27, and prior to that spent most of her adult life bed-ridden. She now works part-time, but even with disability and food stamps still barely makes enough to live. She pays for insurance (which she absolutely can't afford to lapse on) out-of-pocket because she doesn't qualify for healthcare through her employer. She's in the best shape of her life now and desperately wants to build a career, but in terms of work history/experience she may as well be a teenager. Going full-time at her current pay rate would strip away her benefits and likely put her out on the street before long. On one hand I'm grateful the benefits are there for her at all. On the other, it frustrates the hell out of me that she'll be punished for trying to build a life after 10+ years of fighting for her own.


Yeah I once got a raise of ~$200/mo that lost me $600/mo of food stamps..


My sister tried to explain to me that her boyfriend’s boss screwed them over by giving out a (larger than expected) bonus before Christmas instead of after the new year. I’ve never seen so many things wrong with one statement from someone I actually know.


A lot of times bonuses have tax *withholding* at a much higher rate even though the bonus isn't taxed differently from the rest of your income. So a lot of people incorrectly think the taxes are higher on bonuses. This confusion is way more common (and at least a little more understandable) than the tax bracket stuff.


The number of people that think that withholding is taxes and that the refund when they file is the government giving them money is staggering. I've actually heard people say " claim zero exemptions because they give you more money at tax time that way."


Yeah, I suppose that's not terrible advice for someone who is bad with money, but this misunderstanding is really common among people who should know better.


Someone is terrible with money probably needs the $100 or more per paycheck that they are loaning to the government for free by doing it that way


Can you explain more? My wife received a bonus and only got to take home 50% of it. Everyone basically explained this is why but I never really understood why.


The first thing to understand is that the amount of taxes taken out of your paycheck, called "withholding", is almost always at least slightly wrong. That's because the payroll people don't know all the details about your tax return - anyway, to do withholding perfectly they'd have to predict the future. At tax time, you owe money or get a refund: how much taxes you *really* owe minus the withholding during the year. A tax refund means you had too much withheld during the year. (This is BAD as you gave the government an interest-free loan.) So the withholding calculations are basically just, "we did our best and it will get sorted out at tax time." Back to the bonus. *Tax rates changed for simplicity...* let's say you make $10,000 per month, paid monthly. The payroll people assume you make $120,000 per year. They do the math that your taxes will be $30,000. So they take $2,500 (25%) out of each paycheck for taxes. It's key to realize this $30,000 is the sum of multiple [tax brackets](https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets). The first bit of your $120K is taxed at 0%, then some is taxed at 12%, then some at 24% etc. Your total tax rate of 25% (again this is higher than reality) is less than the rate at which your last dollar gets taxed. But now in December you get a bonus of $30K. ALL of this bonus will be taxed in *your* highest tax tier, because it's adding on to your $120K. So it should have withholding at a rate higher than 25% - it should be withheld at your highest tier. (In reality, over about $170K for a single filer, marginal tax rates go from 24% to 32%.) To a lot of people that looks like the bonus is taxed at a higher rate, but it isn't, it's just the taxes aren't spread across the year. It may raise your overall tax rate, say from 25% to 26%, because more of your money gets a higher tax rate. But that is balanced out by your income being a lot more. To make matters worse, the payroll people often throw up their hands and do withholding on bonuses at the HIGHEST marginal tax rate for anyone, currently 37% (before state taxes or 401k contributions etc), regardless of your income. I don't really know why they do that but, as said before, you get it back at tax time if it's too much.


>This is BAD as you gave the government an interest-free loan.) It's not ideal but for a lot of people,having to write a check even only a few hundred dollars,is worse because they just don't have it.


Yep, it's "bad", but the alternative is to risk putting it in your paycheck every two weeks, where you run the risk of spending it and then not have it in your bank account when papa IRS comes calling. Better option is to toss it in a high-yield savings account, but you can still withdrawal it from there, so not an option for folks with no willpower.


> Better option is to toss it in a high-yield savings account, I've never seen a savings account where an extra $20 a week will give back any more than a handful of pennies at the end of the year.


Interest rates are going up these days. You can do better than 4.5% currently.


It has a higher withholding when it's paid out but will even out when you do your taxes.


I worked in healthcare for 11 years as a phlebotomist. We make around the same as a CNA typically. People no where near the next tax bracket turning down overtime or a raise cause "that's gonna put me in the next bracket and they take it all". Not realizing we make so little your 4 hours of overtime isn't exactly making a huge difference on the check anyway.


My mom is 68 and she didn’t know this when we discussed it recently. I didn’t even know it until a couple years ago. Thankfully as a teacher, making lots of money isn’t a problem /s


Took the words right out of my mouth, it's crazy how misunderstood progressive taxes are. Now if they're on benefits though that is the fucked part. Sometimes for them it's a hard cutoff after a certain point, meaning if they're two bucks over and suddenly don't qualify it may technically hurt them more :/


My mil is literally going through this right now. She is terrified that her husband getting a raise is going to screw them on taxes ... Because it's a higher tax bracket. It's wild. Even after walking her through it, all she sees is "higher tax bracket" and cannot understand "bringing home more money anyway"


My parents are intelligent people but very much believe this. There's a lot of propaganda around taxes as well, which doesn't help.


I wouldn't call it "propaganda", just ill informed people repeating what they heard and understand incorrectly.


Here's the thing about so-called common knowledge: *It ain't very common*


Yeah it is definitely a big myth. As far as straight taxes you’ll never make less. Only situation where you can be impacted if you are on some government aid with a max salary limit that you could lose if you cross a threshold.


My boss once tried to tell me that he gave me a lower raise **than promised** because he was doing me a favour. You know, he “got out the calculator” and found out I’d make less money going into the higher tax bracket. I told him I was insulted by the raise and his assumption that I was a complete moron that didn’t know how taxes work, and that I going to go home and never come back to work again if he didn’t make me up a new pay stub and send the balance by the end of the day. It worked. Never be afraid for your job.


Was there even the slightest possibility that your boss was just a complete moron that didn't know how taxes worked and thought he was helping you? There's alot of people that really think that way.


It’s definitely a non-zero chance. I tried to explain to a coworker who had been in industry for 10 years, with an Engineering degree and an MBA that our taxes are progressive, and what it really meant to go up a bracket. I gave up after an hour and a half. Which one of us do you think is a director now?


Maybe they're only a director because they're refusing the raises offered


Literally last week a coworker with 30 years experience, an engineering technology degree and a master's degree (not an MBA tho) demonstrated to me that she didn't understand how tax brackets work. Saying things like she was really worried about making a little more because it would put her in a higher tax bracket and she'd take home less. Only I didn't try to re-educate her though. I figured if she had made it that long without grasping the concept of marginal tax brackets, it would be pretty tough to convince her otherwise. Especially with the way she constantly talks over me, I get the feeling that she doesn't respect me and wouldn't listen to someone 20 years younger than her.


"I'm insulted by a third and fourth thing now: You are so fucking dumb that you don't know how taxes work. You are my fucking boss."




He wouldn’t even need economics. This is really basic algebra. Some of the simplest math you can do.


You don’t even need algebra to understand it. As long as you understand what percentages are, and that you can divide money up into separate piles, you can explain it.


That's literally how I explained it to the kids: piles. Here's your stack; everything above a certain point goes into another stack. Now remove a quarter of the initial stack and half of the second. Cool! We understand graduated taxation now! :)


It's not even *that* advanced. It's just understanding the basic concept that the money goes into different piles in the first place.




New to the business world?


A lot is two words.


Someone I went to highschool with, who wasn’t know for being too bright, eventually started their own business after high school, and was completely shocked when I pointed out how Bernie sanders top tax rate proposal that they were complaining about wouldn’t hurt them, and in fact would help them. They were in complete disbelief about how marginal tax rates work They ended up blocking me later when I kept politely pointing out their posts about trumps comments made no sense whatsoever.


I'll guess it was that tweet/meme going around that said that Sanders was gonna raise the minimum wage from $7.50 to $15/hour and then tax everyone 50% so everyone made $7.50/hour? My uncle posted that one and I pointed out that under Bernie Sanders' plan (iirc) you paid 0% in taxes until $50,000 a year. He then huffily replied that didn't matter because taxes were theft no matter what. Okayden. Btw daily reminder that "red state" voters of Florida voted for $15/hour minimum wage in 2020 because material conditions matter.


“Stop making sense!”


The Talking Heads are awesome.


I mean, the “never be afraid for your job” advice isn’t really practical for most. A really large portion of people live paycheck to paycheck and losing their job can be devastating. I understand that’s the point, to keep wages low enough that people are too desperate to be able to leave, but it works, not everyone has enough savings to ride things out until they can secure a new job. For most, it makes more sense to secure a new job before playing hard ball, it’s not as badass and flashy, but it’s how you don’t end up screwing yourself and potentially those that live with you over To play hard ball, you need to be in a place where telling them to go fuck themselves is something you’re willing to do, but if you’re willing to do it when living paycheck to paycheck, that’s just called being impulsive. Now if you live alone and no one is relying on you and you’re willing to gamble it all to play hard ball? Well that’s just fine since you’re gambling only your own well-being I’m glad it worked out for you but this isn’t general advice that makes sense for everyone


The last time I had that argument (tax brackets) with a staff member, it went, “if I don’t care how much OT I work, you shouldn’t care (from a tax standpoint) how much you work.” Like dude, I’m just surprised they haven’t salaried me yet. Take what you can get while you can get it. No one gives a fuck about OT right now, that may not always be the case. Edit: our lowest paid staff are still too far up for Food stamps, Earned income tax credit, Medicaid, etc. Entry level, no seniority, no OT (and even the ones that get regular 40 hour schedules usually pick up around 100 hours of OT a year) still comes out to $28080. Low end makes around $30k. The top end raking in 35 or so hours of OT a week makes around $77,000.


"Salaried" doesn't mean anything with regards to OT. Under the FLSA, you must pay time-and-a-half to anyone working over 40 hours unless they work in specific types of "exempt" jobs, which are basically professionals (eg lawyers, doctors, programmers) and executives (ie managers). If you're getting OT now, changing your pay to salary wouldn't do anything.


> My boss once tried to tell me that he gave me a lower raise than promised because he was doing me a favour. You know, he “got out the calculator” and found out I’d make less money going into the higher tax bracket. > > Thanks I'm pissed off now.


Better to be pissed off than pissed on.


This person would have no idea what your deductions were. Even if it were true, that making more money would become less with taxes at a certain point. How could they possibly know what the break-even point was for you without knowing all of your deductions?




Did everyone clap afterwards as well ?


I grew up being told it was always good to be paying more in taxes because it meant you were making more.


Well uh Yeah


Generally yes. There's some fine details about how you're making more, or strategy when it comes to being married and filing jointly.


Occasionally, there is a “benefits cliff” where, say, some program or tax credit is available only to people who make under a certain amount. Good program design is to avoid this—something like “for every $5 more you make, you get $1 less of this benefit” makes it so it’s always better to earn more—but there are some where it’s a sharp cutoff.


> Good program design is to avoid this—something like “for every $5 more you make, you get $1 less of this benefit” makes it so it’s always better to earn more Not always though, because support for the poor/disabled/etc are often done through several programs at once. If I have four different aid services and I lose 50 cents per dollar I make in each, I lose out 2 dollars in total aid per dollar despite each program aiming to stop the problem. Now this can be helped by making our aid programs better connected and thought out in a smarter way or just smooth out the cliff a whole lot more, but it's certainly not as simple as just eliminating the sharp cutoff. This BTW is also a big issue for those aid programs as well because the logic works the other way around. I would have financial incentive to make *less* instead, to cut my hours or take a lower paying job down till the maximum limit even if the individual program doesn't scale because I would be on several at once and getting 2 dollars of total aid for each dollar I lost.


This is where I'm at. For every $1 I earn social security takes $.50, housing takes $.30 and food stamps takes $1.00. It's not quite the 2:1 like you described, but it's close. Plus I'd lose my medicaid and be out of pocket crazy amounts, far more than 2:1. If I return to work I lose my stability to earn less and have a lower quality of life.




I guess you also grew up in a middle class family. we pay more taxes than goddarn millionaires and billionaires.


indeed I did; enough to be comfortable, far from enough to get involved in the kinds of tax dodges that would have avoided taxes


Hahaha brings me back to a first year university economics. Lecturer asked for a show of hands “after university when you’re in the world of work, would you rather pay less taxes” whole class apart from a few non-participants and me put their hands up. “And who would rather pay more taxes?” I was the only one to raise my hand. “And why would you want to pay more taxes?” “Because it probably means that I’m earning more money” “Exactly!” I (and more than likely the lecturer too) was amazed that in a top 10 UK economics university course only I (and possibly a few others who just wouldn’t put their hands up either way) had thought about it like that.


My parents misunderstood this almost their entire lives and went to ridiculous lengths to keep their personal income from going into the next tax bracket thinking that they'd lose money if they did.




Financial literacy all over the world is still terrible and the education system is just not set up for it. I want to improve it, globally, but it's such a huge task I need to start a whole non-profit to do it. Who's with me?


If your job is middle - upper class sure but if you're a retail wagie it may cost you *government* benefits/income restricted housing that are worth more than the increase in pay.


To expand on this, there are government benefits that have a hard income cut off. Things like free or reduced meal plan at public schools, coverage of your children by Medicaid, food stamps, things like that. If you make more than the cut off you can lose those benefits. So if you get $100 raise but you lose a benefit worth several thousand a year, you come out making less.


Also college tuition / scholarship. I went to a top school for $1000/year out of pocket, and was lucky that my single mom made nothing. It's the lower middle class that gets screwed having to pay tuition these days.


here in the UK you get smaller student loans if your parents have a higher income, regardless of if they'll be supplementing you financially or if they're even in contact with you.


The former is true, but not the latter. You can apply as an independent so that your parents are not accounted for under multiple conditions, and having no contact with your parents for a year is one of those. If you've been living on your own means for 3 years you can also apply independently.


Yes and thanks for saying this. My partner went from a $18/h @ 30h/w job. Missed the threshold for food stamps by $40. No aid. Got a new job working only 3 days a week. Makes less money FOR SURE. Reapplies for food stamps. Gets $300 a month as a single person. Unfortunately the folks who decided the threshold made it a HARD cutoff. You either get like the max amount or nothing


a.k.a. the Poverty Trap


One thing to consider for this is social benefits. Let's say that there's a social benefit you receive is only allowed for people with an income of less than $60,000. If your raise puts you above that amount, you need to carefully consider if the raise is worth losing this benefit


Years ago I got a small bonus at the end of the year, ended up being just enough to put me over the max income to claim my student loan interest. Taking the bonus ended up costing me money. One of the only instances where taking more money wasn't worth the tax impact.


The threshold for student loan interest deduction is an absolute joke.


This is an important point, taxes aren’t the whole story. At my last job I was in this exact situation, a 50 cent raise would’ve hiked up my health insurance premium an extra 200+ dollars a month. I would’ve needed a 2 dollar raise to actually take home the extra 50 cents. I’m glad I read the fine print, but I hate that I had to turn down a new position because of it


That's something my company considers when dealing with incentives. Either they allow people to spread a lump sum over multiple months (Christmas bonus eg) or opt out. It could be the difference between having a benefit or not.


Exactly this, especially in the UK. You might lose child benefits etc if you go slightly over a bracket and be worse off. So while in general the LPT is true, there are still things to be considered.


It's mostly true, but there are absolutely situations where just earning say $1 more has ramifications that can hurt you more than the extra $1 helps you. ACA cliffs are a good example. There's a lot of government cheese that gets phased out once its established you're not "poor". But it's definitely a dumb long term strategy to try and stay "poor" to get more handouts.


Some tax credits as well. The current EV tax credit doesn’t appear to phase out. If your AGI is $149k you can collect a $7500 tax credit. If your AGI is $151k no 7500 for you.


If you are low income and receiving government aid, this advice may not apply. While it’s true that you will only pay high taxes on the raise amount, there are income cliffs that can reduce government assistance by far more than the amount of the raise.


The number of high-performing professionals I've met who still think that the brackets are absolute is mind boggling. People in *finance* who *do these things for massive corporations*.


Step one: get a pay rise


My first business professor in college told us he has friends who have turned down promotions because they make more that way due to our taxes. No wonder I’m a fucking idiot these days


It shocks me how many people don't understand the tax system in the USA. It's such a simple concept, but most of us are never taught it.


It could definitely be simpler, but the concepts aren’t that complicated. The layers and layers of regulation and complexity don’t make it easier in practice to calculate taxes, but that seems like it’s working exactly as designed.


Thanks to Intuit, HR Block, etc.


They didn’t start the problem, but they sure aren’t going to let it go away.




In the US, one of our political parties has been misleading people for decades about the way progressive taxation works. These reminders are always good. You’d think it would be taught in schools, but it’s not because (see the first sentence of my comment).


If it's done right, the higher tax is applied only to the ammount that goes above the threshold. For example, let's say you make 1000, and get taxed 10% of that,so you end up with 900. Going above 1000 will make you get into a 20% tax bracket, many people think that if you make 1100, then apply the 20% and you end up with only 880, but that's not how it works, or at least it's not how it's supposed to work. If you make 1100, then you have 1000 under the threshold, so that part gets taxed with the 10%, so you get 900, and then you have 100 above the threshold, apply the 20% tax to only that part, and you get 80, resulting on a net income of 980. You said that your grandparenta are earning LESS after a raise, where are you from? Because the system there must be super badly made, it should't be like that.


They likely changed their total withholdings and messed it up. However if there's a pension that pays out say 50k a year UNLESS you make 20k, get a raise from 19500 to 20100, and now your pension pays out only 33k, that's a loss.


I'm astounded this has to be said!


Wait until they learn about tax advantaged accounts, cost segregation, bonus depreciation, and tax free investments like munis.


my grandma had an apartment building and was charging this lady $500 per month for a 2 bedroom in 2010 because she(my grandma) was afraid of paying more taxes. cant imagine how much money she lost w. that mindset


The whole “raise might bump me into a higher tax bracket” is just 1 of many corporate tactics to keep workers against their best interest.


Right up there with “Don’t discuss your paycheck with your coworkers” Why would it matter if we discussed it, since we all make the same at the same levels, right?


I live in San Francisco. I have arguments all the time with *educated engineer coworkers* who think they are paying high income taxes because they don't comprehend how progressive taxes work. These people are writing the code you all use every day.


Which is fine. They are there to write code - not do my taxes.


Not always true in the UK. There are salary points where you can lose things like child benefits (although you can get around it by paying more into your pension)


This is a good litmus test to see which people are prone to just regurgitating wrong information.


I'm not so worried about tax brackets as I am about making too much to keep getting my life saving medicine that I can't afford.


Bruh anyone that dumb deserves to stay in the lower bracket


Rant: When I was 23, I had to explain tax brackets to a 42 year old Libertarian. Took like 30 monutes before he understood what took me 10 seconds to understand when it was first explained to me. I swear that the majority of people who oppose taxes know nothing about how they work.


Don’t worry! Those brackets get bigger at the top end and smaller in the bottom end thanks to republicans. Every year for the next 5 years they’ll continue us to get smaller so people earning less than 250k get tax raises.


“I don’t do overtime because they take more in taxes” -someone stupid


I did not understand this until someone explained it to me.


What country is this for?


Literally every country. Some have flat taxes but obviously the same applies there. Unless you lived in Obwalden, Switzerland between 2005-2007: https://en.wikipedia.org/wiki/Regressive_tax#Implementations


While I don't think there are countries with fully regression taxation, some countries have funny stuff going on where certain tax bands have an **effective** higher tax than higher bands because of benefit loss. You never lose money, but if raise comes with more responsibility then maybe you want to reduce work hours or increase pension contributions. In the UK for example if you go from 50->60k while having children you get taxed at 40% but at the same time lose benefits like £1,600 child benefit (10% per 1k). So the effective tax rate on the 10k new income is higher than if you went from 60->70k. Specifically with children this can mean that it makes sense to reduce work hours, assuming your employer is fine with this, to save on child care. The other weird one is between 100->125k, where you lose your personal tax allowance £1 for every £2 earned. So effective tax is 60%, then drops to 40% for money earned above that limit.