Understanding Tax Brackets: Will a Raise Cost You Money

If there’s one tax myth that just won’t retire despite being well past its usefulness, it’s the idea that “moving into a higher tax bracket means you take home less money.” This is not how tax brackets work (thankfully).  But frequently I hear from a client some good news about a raise or bonus, and their first question for me is whether the IRS is going to be waiting with a vacuum hose to suck up all their joy. So let’s clear the air and explain how tax brackets really work. 

First, the tax system is progressive, which means your income is taxed in layers, not as one giant lump. Think of it like filling cups: your first layer of income fills the “lowest tax” cup, then the next layer fills the next cup, and so on. Only the income that spills into a higher bracket gets taxed at that higher rate, not every dollar you earn. So if you get a raise that pushes part of your income into the next bracket, only that extra portion gets the higher rate. The rest stays happily in the lower brackets, completely undisturbed.  I’ve illustrated this below for the Single taxpayer brackets, but the proportions are the same for Married and Head of Household brackets. 

Here’s the best part: your raise always increases your take-home pay. Always. There is no scenario where earning more makes you end up with less. (If there were, accountants everywhere would be shouting it from the rooftops).  The “raise penalty” myth persists because tax brackets look like cliffs, but in reality, they’re gently sloping ramps. 

Understanding this can help you plan better. For example, if you’re close to a new bracket, it might be a great time to contribute more to retirement accounts, take advantage of tax-favored savings options, or shift the timing of certain deductions. But these strategies are about optimizing, not avoiding a bracket for fear it will swallow your paycheck whole. 

So the next time someone tells you, “Careful, that raise will put you in a higher bracket,” feel free to smile politely, take the raise, and enjoy knowing that the tax system, while not always simple, is at least logical on this point. And if you ever want help running numbers, planning ahead, or simply decoding tax terminology, that’s what I’m here for.