My husband is confused about how a wage increase will affect his taxes, please help me explain to him...?

Question

My husband is making $15 an hour, and his combined taxes taken out amount to about 21% of his gross. His employer offered him a raise to $20, but my husband declined. He believes that the raise would cause his tax bracket to raise so much that he would ultimately be netting less an hour than he is at his current wage. I know that this is a widely believed myth, but I am at a loss as to how to explain it to him with my limited knowledge of taxes. Please help me explain to him that yes, his tax rate may go up a percentage point or two, but he will still see more money on his paycheck if he accepts the raise. Thank you for your help, everyone!!

I just want to thank you all. This is my first question 'asked', and I truly didn't anticipate the level of mature, informed, educated, HELPFUL answers that I would receive. I am now really excited at having this vast knowledge base at my fingertips! (And my husband, after declining the raise twice, is now going to accept it! Did I mention that he thinks I am absolutely brilliant for being so smart?)

Answer 1

I wish I had employees like your husband, I could save a lot of money.
Right now he is keeping .79 cents out of every dollar he earns. if the raise puts you into the 25% bracket you are still keeping .75 cents on every dollar he earns.
This is a simplified example because is you are filing jointly and he is working 40 hours a week he is earning $31,200 a year which is the middle of the 15% federal tax bracket. A raise to $20 an hour at 40 hours a week would raise the annual earnings to $41,600. This is still in the 15% tax bracket. The next tax bracket is 25% and you would have to have taxable income $59,400 to get there. The increase in tax bracket means that all of the taxable dollars up to the $59,400 are taxed at 15% and only the dollars above that are taxed at 25%.
From an economic point of view give me all of the money you can because even if I were in the top bracket I wold still keep .65 cents out of every dollars after taxes.
Take the raise and put it into IRA accounts for the future.

Answer 2

Men are sooooo stupid!!! Bear with me on this one. Tell him to get a piece of paper and a pencil and make notes. Your income is taxed at one rate up to a certain level and and at a higher rate above that level. The higher rate does not go down into the beginning level. An example:::: the first ten thousand dollars of income is taxed at 10%, then the amount aboven ten thousand is taxed at 15%; but the original 10k is not touched by the 15% for the amount above it. After you reach the top of the 15% bracket then the amount in that bracket is taxed at the higher amount; but nothing under that bracket is touched by the higher tax bracket. Draw him a picture if you have to.

Answer 3

Based on a norm of 2,080 yearly working hours, he would go from a gross annual salary of $31,200 to $41,600. The IRS standards are very clear on percentages (using the tables - I've provided a link below); so for example, using married filing jointly, federal tax is computed at 10% over $0 up to $15,100. The next level of federal tax is equal to $1,510 plus 15% of the amount over $15,100 up to $61,300; and so on (see the table).

At any rate, although it is true that the more you make the more you are taxed, but it would never cause you to net less money. He needs to go back to the boss and rescind his decision.

Answer 4

There is a table that shows how tax amounts are calculated on a paycheck. Google and try to find the chart. It may help him to see exactly how his tax is figured and then he'd know exactly how much he'd have taken out. I've attached a link below that may help, I don't know that it's completely official but it should give you and idea. There's no reason not to take a raise in pay, it's how we better ourselves.

Good luck

Answer 5

The link below is the 2007 Federal Tax Rate Schedule. Perhaps showing them to your husband will help.

Example: for Married Filling Jointly if taxable income is under $15,650, tax is 10%. For income from $15,650 to $63,700, tax is $1,565 (10% of 15,650) + 15% of the amount over $15,650.

Tax on $63,600 = $1,565 + 15%($63,700 - $15,650) = $1,565 + 15% (48,050) = $1,565 + $7207.50 = $8772.50
This is 13.8%

Answer 6

Ask him if he wants 85% of something or 100% of nothing. That's what it boils down to. Every client I've ever asked that to has taken the 85% of something.

Answer 7

Why not suggest that he take a reduction to $10/hr and really make a killing?