How Getting a Raise Affects Your Taxes (2024)

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. But this is a somewhat misguided notion about how the progressive federal income tax system used in the U.S. works. While those who receive salary increases are indeed taxed at higher rates, only the added income is vulnerable to the increased rates.

Key Takeaways

The more you earn, the more taxes you pay—but the U.S. progressive federal income tax system lessens the bite somewhat.
Since the system levies different tax rates on different portions of an individual's income, your entire income won't be subject to a higher tax bracket when you get a raise.
Even if your pay raise has bumped you into a higher nominal tax bracket, your effective tax rate would only increase by a few percentage points.

How to Calculate How Much Tax You Owe

The more you earn, the more taxes you pay. But the progressively higher tax rate takes some of the sting out of pulling in more cash. The tax tables below show the rates the Internal Revenue Service (IRS) imposes on income for tax year 2023 (which comes due in April 2024) and 2024 (which comes due in April 2025):

Tax Brackets, 2023
2023 Rate	Married Filing Jointly	Single Filers	Head of Household	Married Filing Separately
10%	$22,000 or less	$11,000 or less	$15,700 or less	$11,000 or less
12%	$22,001 to $89,450	$11,001 to $44,725	$15,701 to $59,850	$11,001 to $44,725
22%	$89,451 to $190,750	$44,726 to $95,375	$59,851 to $95,350	$44,726 to $95,375
24%	$190,751 to $364,200	$95,376 to $182,100	$95,351 to $182,100	$95,376 to $182,100
32%	$364,201 to $462,500	$182,101 to $231,250	$182,101 to $231,250	$182,101 to $231,250
35%	$462,501 to $693,750	$231,251 to $578,125	$231,251 to $578,100	$231,251 to $346,875
37%	Over $693,750	Over $578,125	Over $578,100	Over $346,875

Your marginal tax rate is the rate of tax that applies to each additional dollar of income earned. If you're single and earned $39,475 in 2023, you are in the 12% marginal tax bracket. Your tax liability for 2023 was $1,100 (10% of $11,000) plus 12% of the amount of your earnings over $11,000—which is $28,475. So, you owe $1,100 plus 12% of $28,475, which is $3,417. That makes your total tax for 2023 is $4,517.

While your marginal tax rate was 12%, your 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 total tax by your total income. In this case, $4,517/$39,475 gives you an effective tax rate of 11.44%.

Now, let's see what happens to your tax liability if you got a $10,000 raise that elevated your annual income for 2023 to $49,475. You already know that you owe $1,100 on the first $11,000 you earned. But now that your total income falls between $44,726 and $95,375, your $10,000 raise bumps you into the 22% tax bracket.

Tax Brackets for 2024

The tax tables are updated annually by the IRS. For the tax year 2024, the income ranges are as follows.

Tax Brackets, 2024
2024 Rate	Married Filing Jointly	Single Filers	Head of Household	Married Filing Separately
10%	$23,200 or less	$11,600 or less	$16,550 or less	$11,600 or less
12%	$23,201 to $94,300	$11,601 to $47,150	$16,551 to $63,100	$11,601 to $47,150
22%	$94,301 to $201,050	$47,151 to $100,525	$63,101 to $100,500	$47,151 to $100,525
24%	$201,051 to $383,900	$100,526 to $191,950	$100,501 to $191,950	$100,526 to $191,950
32%	$383,901 to $487,450	$191,951 to $243,725	$191,951 to $243,700	$191,951 to $243,725
35%	$487,451 to $731,200	$243,726 to $609,350	$243,701 to $609,350	$243,726 to $365,600
37%	Over $731,200	Over $609,350	Over $609,350	Over $365,600

Deductions and Credits

The aforementioned example doesn't account for the deductions and credits that may potentially reduce your taxable income. Every taxpayer can choose whether to take a standard deduction or itemize deductions.

Single individuals who don't own their own homes probably don't have many deductions to itemize, so a standard deduction makes more sense. In fact, most Americans now use the standard deduction since it nearly doubled in size in 2018.

Instead of paying tax on all $49,475 that you earn in the example above, you'll pay tax on that amount minus the standard deduction. For tax year 2023, the standard deduction for single filers is $13,850, reducing your taxable income to $36,525. For 2024, the deduction for single filers is $14,600.

Does Getting a Raise Affect Taxes?

Yes, getting a raise affects taxes. The more money you earn, the more taxes you will have to pay, increasing your tax bill. For example, if the income tax is 10% and you earn $5,000, your tax bill is $500. If you get a raise to $8,000, your tax bill is now $800. The U.S. income tax is progressive, so the more income you earn, the higher the rate you will pay in taxes as you move from one income tax bracket to a higher one. But only the additional income that falls in the higher tax bracket is subject to the higher tax.

Do Bigger Paychecks Get Taxed More?

It is possible that bigger paychecks get taxed more. As you earn more and more income, you move into a higher marginal tax bracket, as the U.S. income tax system is progressive. You will only be taxed on the additional income that falls into a higher tax bracket; not all of your income will be taxed in the higher tax bracket; however, this will still mean that your bigger paycheck is taxed more.

How Can I Avoid Owing Taxes?

There is no way to avoid owing taxes altogether; however, there are many ways to reduce your taxable income, meaning that you will pay less in taxes. For starters, you can take standard or itemized deductions, which lowers your taxable income. You can also contribute pre-tax to retirement programs, such as a 401(k), which will also lower your taxable income.

The Bottom Line

The progressive tax system is designed to levy different tax rates on different portions of an individual's income, imposing the higher rate only on income above a certain level. Your entire income won't be subject to a higher tax bracket, in other words. All in all, a raise is a cause for celebration and not a source of angst.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

Internal Revenue Service. "26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2022-38," Pages 5-7.
Internal Revenue Service. "26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2023-34," Pages 5-7.
Internal Revenue Service. "Individual Income Tax Returns, Complete Report 2020," Page 21.
Internal Revenue Service. "Here’s a Quick Overview of Tax Reform Changes and Where Taxpayers Can Find More Info."
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."
Tax Foundation. "Glossary: Progressive Tax."
Financial Industry Regulatory Authority. "What Does It Mean to Be Pre-Tax or Tax-Advantaged?"

FAQs

How Getting a Raise Affects Your Taxes? ›

Yes, getting a raise affects taxes. The more money you earn, the more taxes you will have to pay, increasing your tax bill. For example, if the income tax is 10% and you earn $5,000, your tax bill is $500. If you get a raise to $8,000, your tax bill is now $800.

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Does getting a raise affect tax refund? ›

Ultimately, the amount of tax that's withheld throughout the year affects how much you'll be refunded (or owe) at tax time. So if you're in a higher income tax bracket now, because of your raise, withholding more throughout the year can mean you'll owe less, or be refunded more, come tax time.

Do you get a tax break for getting a raise? ›

Increasing your income might move you into a higher marginal tax bracket, but you'll only pay a higher tax rate on the last dollars that you earn. You might become ineligible for certain social services and tax breaks after getting a raise.

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How does getting a raise bonus affect taxes? ›

Bonuses are considered wages and are taxed the same way as other wages on your tax return. However, the IRS doesn't consider them regular wages. Instead, your bonus counts as supplemental wages and can be subject to different federal withholding rules than your regular wages when your get paid your bonus.

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Do I need to change my tax withholding if I get a raise? ›

Any time your income goes up, your tax liability will likely go up too, requiring a new W-4. If your extra income comes from a side job with no tax withholding, you could submit a new W-4. It would adjust the withholdings at your main job for the extra income.

Why do I owe taxes when I get a raise? ›

The more money you earn, the more taxes you will have to pay, increasing your tax bill. For example, if the income tax is 10% and you earn $5,000, your tax bill is $500. If you get a raise to $8,000, your tax bill is now $800.

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Why was I taxed 40% on my bonus? ›

Because the IRS considers company bonuses “supplemental income,” they are taxed just like any other income you make. Other types of payment that fall into the supplemental income category include commissions, overtime pay, tips, severance and payment for unused accrued time off.

Should you tell TurboTax you got a raise? ›

If you received a a raise/bonus, just enter your reporting document as you normally would. Click here for info on How To Import or Enter My W-2. If you received a 1099-Misc or 1099-NEC, type '1099-misc' or '1099-NEC' in the Search area, then click on 'Jump to 1099-xxx' to enter. This income is taxed as regular income.

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Do I get taxed more if I make more? ›

Like any progressive tax system, the more money you make, the higher tax bracket you're in and the more you owe the government. It's common for people to move into higher tax brackets as they age and their earning power increases, but loss of income can also knock you into a lower bracket and reduce your tax burden.

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Is it better to claim 1 or 0 on your taxes? ›

Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.

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How to get the most out of your paycheck without owing taxes? ›

To receive a bigger refund, adjust line 4(c) on Form W-4, called "Extra withholding," to increase the federal tax withholding for each paycheck you receive. Tax withholding calculators help you get a big picture view of your refund situation by asking detailed questions.

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Do you get a less tax refund if you make more money? ›

Here are a few more of the many reasons that can cause lower tax refunds (or higher tax bills): Making more money (or a spouse making more money, if filing jointly) can reduce the amount of the EITC you qualify for and might even disqualify you from claiming it altogether.

What factors affect tax refunds? ›

Why is my refund different than the amount on the tax return I filed? (updated December 22, 2023) All or part of your refund may be offset to pay off past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or other federal nontax debts, such as student loans.