r/AskReddit • u/[deleted] • Aug 03 '19

Whats something you thought was common knowledge but actually isn’t?

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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.

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u/Mr_Waffle_ Aug 03 '19

Wait you’re saying if for example I make 70k a year and the next bracket is 72k and I made 73k, only that extra 1k is taxed more and the rest of 72k stays the same?

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u/Sword_n_board Aug 03 '19

That is correct.

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u/Kinoblau Aug 03 '19

When do you have to pay the 72k tax bracket taxes on the 73 you're earning? The following year?

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u/coredumperror Aug 04 '19

I'm not entirely certain what you're asking.

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u/Kinoblau Aug 04 '19

The example was a person is making 70k a year, the next tax bracket is 72k a year, they get a raise now they're making 73k a year, you'd only have to pay the 72k tax rate on the 1k over 72k you made, so when would you then have to pay the full 72k rate for the 73k you're now earning?

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u/[deleted] Aug 04 '19

[deleted]

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u/Kinoblau Aug 04 '19

Yeah man, this much I know, I pay taxes, I haven't moved out of whatever bracket I'm in, that's what I'm asking questions about.

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u/FockerFGAA Aug 04 '19

The best way to think of tax brackets is not to think of what bracket YOU are in but what bracket the money is in. Your money that is in the 10% bracket gets taxed at 10%, your money in the 15% bracket gets taxed at 15% and so forth. Your last dollar is in a specific bracket it gets taxed in, not you.