Will Earning More Money Put Me in a Higher Tax Bracket?
Hudson, NH Resident Wonders
Your tax bracket, which can change from year to year, is determined by your annual income. The progressive income tax system we use means that the more money you earn the higher the tax bracket for this additional income. This does not mean that you pay a higher rate on all of your income, but only that income which fall into subsequent tax brackets.
A resident in Hudson recently contacted us. He was concerned that the recent raise that he received at work would put him in a higher tax bracket, resulting in less money overall.
Only Income in the Higher Tax Bracket is Taxed at that Higher Rate
Tax brackets in the United States begin at 10% and progressively increase based on your earnings. This breakdown varies whether you are filing as a single individual or a married couple. The base income is taxed at the lower rate and additional funds are taxed at the higher rates accordingly. This means that you do not necessarily have a set tax bracket, but instead all of the money is taxed accordingly to the bracket which it falls in.
While you will pay a higher tax rate on the additional money that is earned, the rest of your income will be taxed accordingly. This means that earning more money does not mean that your entire income will be pushed into the next tax bracket, but only that income that exceeds each current bracket.
In the case of the Hudson resident, he was pleased to hear that his raise wouldn’t negatively impact his income and he will soon be enjoying the extra cash in his paycheck.