“I don’t want a raise because it’ll put me in a higher tax bracket and I’ll take home less money.”

Sound familiar? If you’ve ever heard this statement (or made it yourself), you’re not alone. This is one of the most persistent tax myths we encounter at JCT Tax Solutions, and it’s costing people money and career opportunities based on a fundamental misunderstanding of how tax brackets actually work.

The truth is simpler and much more encouraging than you might think: earning more money will always result in taking home more money. Let’s break down exactly how tax brackets work and put these myths to rest once and for all.

Understanding the Basics: What Are Tax Brackets?

Tax brackets are ranges of income that are taxed at specific rates. The United States uses a progressive tax system, which means that as your income increases, the tax rate on additional income increases as well. However—and this is the crucial part—only the income within each bracket is taxed at that bracket’s rate.

Think of tax brackets like a series of buckets that you fill with water (your income). Each bucket has a different cost per gallon. You fill the first bucket completely before moving to the second, and so on. The water in the first bucket always costs the same, regardless of how many other buckets you fill.

2025 Federal Tax Brackets for Single Filers

Here are the federal income tax brackets for single filers in 2025:

• 10%: $0 to $11,925
• 12%: $11,926 to $48,475
• 22%: $48,476 to $103,350
• 24%: $103,351 to $197,300
• 32%: $197,301 to $250,525
• 35%: $250,526 to $626,350
• 37%: $626,351 and above

Note: These brackets are adjusted annually for inflation. Married Filing Jointly and other filing statuses have different bracket ranges.

The Big Myth: “I’ll Take Home Less If I Earn More”

This myth stems from confusing marginal tax rate (the rate on your last dollar of income) with effective tax rate (your overall tax rate). Let’s use a real example to show why this fear is unfounded.

Example 1: The $49,000 Promotion Myth

Meet Sarah, a single filer who currently earns $48,000 per year. She’s been offered a promotion that would increase her salary to $49,000—but she’s worried because this will “put her in the 22% tax bracket.”

Sarah’s Current Tax (at $48,000):

• First $11,925 taxed at 10% = $1,192.50
• Next $36,075 ($48,000 – $11,925) taxed at 12% = $4,329
• Total federal tax: $5,521.50
• After-tax income: $42,478.50

Sarah’s Tax After Promotion (at $49,000):

• First $11,925 taxed at 10% = $1,192.50
• Next $36,550 ($48,475 – $11,925) taxed at 12% = $4,386
• Next $525 ($49,000 – $48,475) taxed at 22% = $115.50
• Total federal tax: $5,694
• After-tax income: $43,306

Result: Sarah takes home an additional $827.50 per year ($43,306 – $42,478.50), not less money as the myth suggests.

Notice that only the $525 above the $48,475 threshold gets taxed at 22%. The rest of her income is still taxed at the same rates as before.

Marginal vs. Effective Tax Rate: The Key Distinction

Understanding the difference between these two rates is crucial for making informed financial decisions.

Marginal Tax Rate

Your marginal tax rate is the percentage of tax you pay on your last dollar of income. In Sarah’s case above, her marginal tax rate is 22% because any additional income will be taxed at that rate.

Effective Tax Rate

Your effective tax rate is the percentage of your total income that goes to taxes. For Sarah earning $42,000:

Effective tax rate = Total tax ÷ Total income
$5,694 ÷ $49,000 = 11.6%

Even though Sarah is “in the 22% tax bracket,” her effective tax rate is only 11.6%. This is why earning more money always results in taking home more money.

More Examples: Breaking Down Common Scenarios

Example 2: The Six-Figure Salary

Let’s look at Mark, a single filer who earns $110,000 per year:

Mark’s Tax Calculation:

• First $11,925 at 10% = $1,192.50
• Next $36,550 ($48,475 – $11,925) at 12% = $4,386
• Next $54,875 ($103,350 – $48,475) at 22% = $12,072.50
• Next $6,650 ($110,000 – $103,350) at 24% = $1,596
• Total federal tax: $19,247
• Effective tax rate: 17.5%

Mark is “in the 24% tax bracket,” but his effective tax rate is only 17.5%.

Example 3: The Overtime Opportunity

Consider Lisa, who normally earns $60,000 but has the opportunity to work overtime and earn an additional $5,000 this year.

Lisa’s concern: “That overtime will be taxed at a higher rate!”

Reality check: Lisa’s marginal tax rate is 22% (since $60,000 puts her in that bracket). The additional $5,000 will indeed be taxed at 22%, meaning she’ll pay $1,100 in additional federal taxes but keep $3,900. She’s still significantly better off taking the overtime.

Important note about paycheck withholding: Lisa might notice that her overtime paychecks have more tax withheld than she expects. This happens because payroll systems assume your overtime pay represents your new permanent salary level and withhold accordingly. For example, if Lisa works significant overtime in one pay period, the system might withhold taxes as if she’ll earn that higher amount all year long. However, when she files her annual tax return, the tax calculation will be based on her actual total income for the year ($65,000), not the projected amount from her highest-earning pay period. If too much was withheld during the year, she’ll receive the excess back as a tax refund.

Beyond Federal Taxes: The Complete Picture

When evaluating the impact of additional income, it’s important to consider the full tax picture beyond just federal income tax brackets:

State Income Taxes

State income tax systems vary significantly across the country. Some states, like Minnesota where JCT Tax Solutions is located, have progressive income tax systems similar to the federal system—meaning the same principle applies where only additional income is taxed at higher rates. Other states use a flat tax rate on all income, while some states have no state income tax at all.

If you live in a state with income tax, any additional income will be subject to state tax as well, but you won’t face the “bracket jump” myth at the state level either—you’ll always take home more money when you earn more, regardless of your state’s tax structure.

Payroll Taxes

Social Security and Medicare taxes (FICA) are calculated differently:

• Social Security tax: 6.2% on income up to $176,100 (2025 limit)
• Medicare tax: 1.45% on all income
• Additional Medicare tax: 0.9% on income over $200,000 (single filers)

These are flat rates, not progressive brackets, so they don’t create the “cliff effect” that people worry about.

Other Considerations

• Retirement plan contributions: While contribution limits don’t change based on income, earning more money may give you additional funds to maximize your 401(k) or IRA contributions, which can help offset some of the tax impact of your raise through pre-tax savings
• Tax credits and deductions that phase out: Some tax benefits are reduced or eliminated at higher income levels. For example, the Child Tax Credit begins to phase out at $200,000 for single filers, and the Student Loan Interest Deduction phases out between $75,000-$90,000 for single filers (2025 amounts). However, these phase-outs are gradual, not sudden cliffs
• Tax planning opportunities: Higher income may open up new tax strategies, such as backdoor Roth IRA conversions or increased charitable giving for itemized deductions. Conversely, if you have an unusually low income year or expect higher income or tax rates in the future, it can be an opportunity for traditional-to-Roth IRA conversions, paying taxes now at your current lower rate rather than later at potentially higher rates

When Higher Income Can Actually Reduce Benefits

While earning more never results in taking home less due to tax brackets, there are some situations where additional income can reduce government benefits:

Benefit Cliffs

• Medicaid eligibility: Crossing income thresholds can result in loss of coverage
• Subsidized housing: Income limits may affect eligibility
• Food assistance (SNAP): Benefits may decrease with higher income
• Premium tax credits: Health insurance subsidies phase out with higher income

Social Security Considerations

• Retirement earnings test: For those collecting Social Security before full retirement age, excess earnings can temporarily reduce benefits
• Taxation of benefits: Higher income can make more of your Social Security benefits taxable

These situations are specific to certain government programs and don’t apply to the general tax system.

Strategic Tax Planning: Making Smart Decisions

Understanding how tax brackets work opens up opportunities for smart tax planning:

Timing Income and Deductions

• Bunching strategy: Concentrating deductions in alternating years to exceed the standard deduction
• Retirement contributions: Using pre-tax retirement savings to manage taxable income
• Year-end planning: Timing bonuses or additional income strategically

Business Owners and Self-Employed

• Quarterly payments: Understanding marginal rates helps with estimated tax planning
• Equipment purchases: Section 179 deductions can help manage income in high-earning years
• Business structure: Tax brackets influence decisions about S-Corp elections and other entity choices

Real-World Applications: Making Better Decisions

Armed with accurate information about tax brackets, you can:

Career Decisions

• Accept promotions and raises with confidence
• Negotiate salary increases without fear of tax consequences
• Consider additional work or overtime opportunities objectively

Financial Planning

• Make informed decisions about retirement contributions
• Plan Roth IRA conversions during lower-income years
• Evaluate the true cost of various financial decisions

Business Decisions

• Understand the real tax impact of business income
• Make better decisions about equipment purchases and business investments
• Plan for quarterly estimated tax payments more accurately

Common Questions About Tax Brackets

Q: What if my income puts me right at the edge of a tax bracket? A: There’s no penalty for being at the edge. If you earn one dollar over the threshold, only that dollar is taxed at the higher rate.

Q: Do bonuses get taxed differently? A: Bonuses are subject to different withholding rules (often at a flat rate for federal withholding), but they’re taxed as ordinary income on your return just like your regular salary. You may get a refund if too much was withheld during the year.

Q: How do tax brackets affect my paycheck withholding? A: Your employer uses tax tables that approximate your annual tax liability. The withholding per paycheck may seem high if you get a large raise, but your annual tax return will reconcile any overpayment.

Q: Should I try to stay in a lower tax bracket? A: No. The additional income you’d give up is always more than the additional taxes you’d pay.

Planning for Next Year: Actionable Steps

Now that you understand how tax brackets really work, here’s how to use this knowledge:

For Employees

1. Review your withholding: Use the IRS withholding calculator to ensure you’re not having too much or too little withheld
2. Maximize retirement contributions: Higher earners benefit more from pre-tax retirement savings
3. Consider Roth vs. traditional: Understanding your marginal rate helps choose between Roth and traditional retirement accounts

For Business Owners

1. Plan quarterly payments: Estimate your marginal rate to make accurate quarterly payments
2. Time income strategically: Consider whether to accelerate or defer income based on expected future rates
3. Evaluate business deductions: Understand how business expenses offset income at your marginal rate

For Everyone

1. Keep learning: Tax laws change, but the progressive system remains consistent
2. Don’t let tax fears drive financial decisions: Focus on maximizing your overall financial well-being
3. Consult professionals: For complex situations, professional guidance ensures you’re making optimal decisions

The Bottom Line: Embrace Higher Income

The fear of “jumping tax brackets” has kept too many people from pursuing opportunities that would improve their financial lives. Here’s what you need to remember:

• You never take home less by earning more (except in specific benefit cliff situations)
• Only additional income is taxed at higher rates, not your entire income
• Your effective tax rate is always lower than your marginal rate
• Understanding this difference helps you make better financial decisions

The next time someone tells you they don’t want a raise because of taxes, you can confidently explain why that doesn’t make sense. Better yet, use your newfound understanding to pursue opportunities that will genuinely improve your financial situation.

Need Help with Tax Planning?

Understanding tax brackets is just the beginning of effective tax planning. Whether you’re facing a career change, starting a business, or planning for retirement, the team at JCT Tax Solutions can help you navigate the complexities and make decisions that optimize your tax situation.

Our comprehensive tax planning services go beyond just filing returns—we help you understand how different financial decisions affect your taxes and develop strategies that align with your goals.

Ready to take control of your tax situation? Contact us today to schedule a consultation. Let’s work together to ensure you’re making informed decisions that maximize your financial success.

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The information provided in this blog is general in nature and has not been customized for your specific tax situation. Tax laws can be complex, and individual circumstances vary. For personalized advice regarding your tax planning needs, please schedule a consultation with our professional team.