I often see people bemoaning being placed into a higher tax bracket, or hearing that they actually want to avoid earning more money, because earning more would put them into a higher tax bracket, and they are worried they are going to end up taking less money home, because of the higher tax rate.
Let's say that that people making up to $50,000 are in a bracket that pays 10% and people that are making over that pay 20%. If you got a $1000 raise that pushed you into the next bracket, people seem to think it would work like this:
And just to be clear this is not how taxes work:
| Before Raise | After Raise | |
|---|---|---|
| Gross income | $49,500 | $50,500 |
| Tax rate | 10% | 20% |
| Taxes | $4,950 | $10,100 |
| Net income | $44,550 | $40,400 |
However, like I said, that isn't how tax brackets work. What happens is, when you move into a new tax bracket, all your income below the cut-off is still taxed at the old rate. So, if you moved into a higher tax bracket in the same way, only your income over $50,000 would be taxed at 20%. This is how it would actually work:
| Before Raise | After Raise | |
|---|---|---|
| Gross income | $49,500 | $50,500 |
| Income taxed at 10% | $49,500 | $50,000 |
| Income taxed at 20% | $0 | $500 |
| Taxes | $4,950 | $5,100 |
| Net income | $44,550 | $45,400 |
This is how tax brackets work in the United States and (as far as I'm aware) every country with a progressive tax code.
TLDR; Tax brackets will never cause you to have less take-home money because of more income
