Ask Lemmy

Some people may be thinking of what’s called the “benefits cliff”. At certain points you lose the ability to take certain tax credits or deductions. Theoretically this could result in a higher net out of pocket for you, but in the grand scheme it’s really minor, so always take the raise.

For anyone here who doesn't understand why this is bad advice, it's because income tax increases only apply to income made above that threshold.

Let's do a simple example and pretend there's only 2 tax brackets. From 0-50k tax is 10% and over 50k it's 20%.

If you make exactly 50k your tax burden will be 5k and you'll take home 45k a year.

If you get a 1k raise, only the final thousand is taxed at the higher rate, so your tax burden will be 5200 (10% of the first 50k and 20% of the remainder), and you'll take home 45,800 a year.

So even though you change tax brackets, you still make more money.

I'd say about 20% of people I encounter, including people in my immediate family, still believe this.

My uncle believes this and has made life decisions based on it ... but has a financial advisor. So either that advisor sucks or he hasn't actually discussed finances with them.

The same people who think they pay federal tax dollars cause they never realize they get it all back and then some.

In the UK there is a point between 100 and 125k where the tax levels of being in that region make it more financially prudent to do pension salary sacrifice or a similar scheme. You should still take the pay rise obviously.

Edit: To illustrate it I think the marginal tax rate jumos to ~60% or something like that between 100-124k. but then moves back down to 47% after you earn over 125k for some reason.