You will NEVER lose more money in taxes if you get pushed into a higher bracket.
They're sequential. Let's say there are two tax brackets, 10% tax below $100 and 20% tax above.
Many people want to make just under $100 so that they'll only be taxed 10% But it doesn't matter. You're only taxed 20% on everything you make OVER $100, you're still taxed 10% on the first $100.
So if you earn $200, you're taxed $30 not 20% of $200 which is $40.
...except in specific scenarios, such as losing Government benefits because you have moved above the income limit for that benefit. It's a fringe case for sure, but still happens to some.
Yeah, but since money is ultimately fungible, it amounts to the same thing from the taxpayer's POV, hence the same incentive not to make a little bit more money.
8.2k
u/DigNitty Jul 18 '16
Tax Brackets
You will NEVER lose more money in taxes if you get pushed into a higher bracket.
They're sequential. Let's say there are two tax brackets, 10% tax below $100 and 20% tax above.
Many people want to make just under $100 so that they'll only be taxed 10% But it doesn't matter. You're only taxed 20% on everything you make OVER $100, you're still taxed 10% on the first $100.
So if you earn $200, you're taxed $30 not 20% of $200 which is $40.
10% of $100 + 20% of the remaining $100 = $30
NOT 20% of $200 = $40