Getting a Raise Isn’t Bad for Your Taxes (Despite What You’ve Heard)

Many people fear that getting a raise will push them into a higher tax bracket, leaving them with less take-home pay.

This misconception often stems from a misunderstanding of how marginal tax rates work in the U.S. tax system. The truth is, earning more money never means actually losing money due to taxes.

Find out why that fear is unfounded and how you can ensure you’re maximizing your income so you can build wealth.

When you move into a higher tax bracket, only the slice of your income above the threshold for that bracket is taxed at the higher rate.

The rest of your income continues to be taxed at the lower rates applicable to each portion. This means your entire paycheck isn’t subject to the higher rate, and a raise always results in more take-home pay, not less.

Let’s look at an example to illustrate. Based on federal tax rates for those who file an individual return in 2025:

• Income above $48,475 will be taxed at 22%
• Income above $103,350 will be taxed at 24%

So, if you get a raise in 2025 from $98,000 to $108,000, here’s how your taxes would be calculated:

• The first $103,350 will be taxed at 22%
• Only the $4,650 above $103,350 will be taxed at the higher 24% rate

This means most of your income remains taxed at the lower rate, and your raise increases your take-home pay significantly more than it increases your taxes.

Understanding the tax brackets for the current tax year is key to seeing how much of your raise might be taxed at a higher rate. For 2025, here are the adjusted brackets for single filers:

• 10%: Up to $11,925
• 12%: Above $11,925
• 22%: Above $48,475
• 24%: Above $103,350
• 32%: Above $197,300
• 35%: Above $250,525
• 37%: Above $626,350

For married couples filing jointly, the brackets are slightly higher to reflect combined incomes:

• 10%: Up to $23,850
• 12%: Above $23,850
• 22%: Above $96,950
• 24%: Above $206,700
• 32%: Above $394,600
• 35%: Above $501,050
• 37%: Above $751,600

Knowing these thresholds helps you understand exactly how much of your raise will fall into a higher bracket — and it’s likely less than you think.

While earning more means paying slightly higher taxes on that additional income, there are many strategies to lower your taxable income.

The following methods can help you keep more of your hard-earned money while still enjoying the benefits of a raise.

Contributions to a traditional 401(k) are tax-deferred, so you won’t pay taxes on contributions until you withdraw the money in retirement.

By increasing your 401(k) contributions, you can lower your taxable income while building your retirement savings.

For 2025, you can contribute up to $23,500 to a 401(k) if you're under 50. Those who are 50 and older can make an additional catch-up contribution of $7,500, and those who are 60 to 63 can make a catch-up contribution of $11,250.

If your employer offers a flexible spending account (FSA), you can contribute pre-tax dollars to cover eligible health care or dependent care expenses.

For 2025, you can contribute up to $3,300 to a healthcare FSA, reducing your taxable income while covering out-of-pocket medical costs.

Those who are eligible for a health savings account (HSA) can contribute even more — $4,300 for self-only coverage and $8,550 for family coverage. Those who are 55 or older can contribute an additional $1,000 as a catch-up contribution.

An individual retirement account (IRA) is another way to reduce your taxable income. Contributions to a traditional IRA may be tax-deductible, depending on your income and other factors.

For 2025, the maximum IRA contribution limit is $7,000, or $8,000 if you’re 50 or older.

A 529 savings plan allows you to invest money for future education expenses. While contributions aren’t federally tax-deductible, earnings grow tax-free.

Some states offer additional tax benefits for contributions, helping you reduce your overall tax burden while preparing for education costs.

The earned income tax credit is designed to benefit low- to moderate-income earners, especially those with children. Eligibility and the amount you can claim depend on your income and family size, but even a modest raise may still allow you to qualify.

For 2025, maximum credit amounts range from $649 for single filers with no qualifying children and up to $8,046 for filers with three or more qualifying children.

A pay raise is always a net positive for your financial health. So, don’t let the myth of higher tax brackets discourage you from earning more.

Understanding how marginal tax rates work, combined with strategies to lower your taxable income, can help you make your paycheck stretch a bit further.