As we said in a recent post, the more money you make, the more taxes you’ll [likely] owe. Not only is there more money to pay taxes on, but you make enough, and you’ll be bumped into a higher tax bracket.
That means you’re paying more per dollar in taxes
This has caused a false fear to spread amongst some. They think that by getting a raise, they can actually end up making less money due to taxes. We’ve got some great news though…
It’s Not True
Getting a raise will not result in a smaller take home amount because of taxes.
The US operates on a marginal tax rate system. That means when you jump up in a tax bracket, you’re only paying the higher tax rate on the amount above the previous bracket. Confused?
Let’s spell it out a little more clearly, using next year’s tax brackets.
For 2018, the first tax bracket will go up to $9525. For people who make $9525 or less, they will pay 10% tax on their income. The next bracket goes from $9526 – $38,700. People in this tax bracket will pay 15% in taxes, but only on the amount that’s over $9525.
For the first $9525, they will pay 10%.
So, let’s say you make $30,000. You will pay 15% on $15,475 and 10% on $9525. This pattern continues into the rest of the tax brackets as well. For every dollar you make over $38,700, you will pay 25% in taxes up till $93,700, and so on.
While it may not be fun to pay higher taxes on the higher dollar amounts, at least you don’t have to worry about making less money because you got a raise.
Of Course, There’s More to Taxes Than How Much Money You Make
A lot contributes to what you pay for taxes, from tax breaks to deductibles to exemptions, and more. Our federal tax code is about 74,000 pages long. The only way you’re going to know for sure that your taxes are correct is with the guidance of a tax professional.
Whether you need personal tax assistance or small business accounting in Springfield, Ohio, LWS has you covered. We’ll make sure your money is in order and your taxes are accurate. No one wants to pay more in taxes than they have to.
We’ll make sure you don’t.