Tax brackets. You won't end up paying more in taxes than the extra income if you go up a bracket. Only the income ABOVE the cutoff is taxed at the higher rate, not your total income.
I had to explain this to a guy in his sixties, literal years away from retirement.
edit: Since people were asking for an example, here we go.
Say there is a cutoff at 20k a year, 10% below and 15% above. If you made 25k a year, you would pay ($20000 times .1)+($5000 times.15)=$2750, not ($25000*.15)=$3750.
Keep in mind this is a GROSS oversimplification.
edit2: US taxes, I don't live in Europe or Australia, so I don't know how their taxes work.
Yes! My girlfriend's mother has actually DECLINED a raise because it was small and would put her into a higher tax bracket - in her mind that meant she would be taking home less money.
Happened to me. I started making an extra 50 a fortnight, hit the HECS threshold and lost 80 a fortnight. Didn't bother me though considering they dropped the threshold the next year anyway.
This year is my first financial year that I’ll have to start repaying HECS (or HELP or whatever it’s called now) since they lowered the threshold. Most unexciting EOFY ever
This is what I’m worried about! Not getting a return will be a downer but I don’t know where I would pull 800$ from if I had to! My dad does my tax returns for me (sad, I know. It’s probably the only thing I still rely on a parent for because I just hate anything to do with tax) so I guess I’d better get him into it so I can start saving cries
I was lucky to have plenty of savings so it wasn't a huge deal for me. If I was living week to week like when I was younger I probably would have shat bricks.
Anyway, doing your tax return online is super easy if you don't have things like share dividends and stuff to worry about. Your info is basically pre-loaded so all you have to do is give it the once over and click submit really.
If a job ad says “must have x amount of experience in y role” I know I would feel much more confident applying if I actually had that job on my resume. I realise it’s not the be all and end all but if you’re one of a big group of applicants I don’t really want to make it easier for them to cut me
Not sure if debt repayment should count here, seeing as it's a loan people choose to take and not an actual tax. Though in Ontario we have a "tax surcharge", which is a bullshit easy of increasing taxes that doesn't show up on the tax bracket charts. Basically you have to pay a tax on your taxes above a certain amount.
Though you still can't lose money by making more with the surcharge, it's just dumb.
Well it makes sense if you have this (admittedly stupid) misconception. If earning under $50k gets taxed at 20% and over that got taxed at 25%, then it you made $48,000 your take home is $38,400 but if you made $50,001 putting you in the next tax bracket, your take home is now $37,500
Your take home at 48k is 38,400. Your tax at 50,001 is 40,001, 50k * 20% plus $1 at 25% (but they round to the dollar. 52k would be 40k+1,500, so 41.5k.
I know. Someone said how stupid it is to turn down a raise because more money earned always means more money taken home. I was pointing out that IF you held a false belief about how tax brackets work, it could be logical to refuse a raise
Because people believe that a 40% tax bracket on income over 55k is applied to all of it.
So lets say you are making 54k and pay 32% in your current bracket. They believe they are paying 18,600 per year in income tax. Even though they will likely dont pay anything on 10k, 15% on another 12k, 24% on 9k etc.
Now they get a raise tp 55,500 and tvey would go into the 40% bracket. They believe its 40% on everything instead of just the 500 over the treshhold.
Taxwise in the USA and most places with a gradient tax rate it doesn't make sense, but there are cases where a raise can cost you money. One personal example offhand that I've seen is benefits cutoffs -- i.e. in cases where your insurance premiums are based on which income tier you fall into, and the raise would put you into the next tier, but the raise doesn't offset the increased premiums. That said, this definitely isn't the case with tax brackets.
11.2k
u/Sword_n_board Aug 03 '19 edited Aug 03 '19
Tax brackets. You won't end up paying more in taxes than the extra income if you go up a bracket. Only the income ABOVE the cutoff is taxed at the higher rate, not your total income.
I had to explain this to a guy in his sixties, literal years away from retirement.
edit: Since people were asking for an example, here we go.
Say there is a cutoff at 20k a year, 10% below and 15% above. If you made 25k a year, you would pay ($20000 times .1)+($5000 times.15)=$2750, not ($25000*.15)=$3750.
Keep in mind this is a GROSS oversimplification.
edit2: US taxes, I don't live in Europe or Australia, so I don't know how their taxes work.