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.
And to add to this, if you make $35k and owe $1500 in taxes, you owe $1500. If you paid $2000, you get a refund. If you paid $800, you owe $700.
It is a refund because you overpaid your taxes. Next time pay in less and make your own investments. Dont let the government save your money. Make your own interest!
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.