You will never take home less money by graduating to a new tax bracket. Here’s why:

A common misconception that Americans have is that making more money and graduating to a new tax bracket will lead to them taking home less money because of that new tax bracket. I’ve heard anecdotal stories of people refusing a raise because it would put them in the next tax bracket, which led to them thinking their new tax rate would lead to them taking home less money. Today, we are going to go through an example that shows how the US tax system works for individuals, and how you still end up taking more money after moving up a tax bracket. 

This misconception is that your tax bracket is your effective tax rate, but it is really your marginal tax rate. This means that the rate you pay is only effective for income you haven’t paid taxes on yet. Let’s say someone makes $51,675 in 2019, they take the 2019 standard deduction of 12,200, leaving $39,475 of taxable income. The tax breakdown would look like this: 

Instead of paying 12% on all of the taxable income ($39,475 * 12% = 4,737), the person will pay 10% on the first $9,700, and 12% only on the next $29,775. In this case, the next dollar made would be taxed at 22%. Let’s see what happens when we bump up into the next tax bracket with a raise to $77,000:

The entire extra $25,325 compared to the last example is taxed at 22% to add a tax liability of $5,572. BUT, the income from before is still taxed at the respective marginal rates of 10% and 12%, NOT 22%. 

Remember, the US tax system is based on a marginal rate system for individuals for regular income. Your tax bracket represents your marginal tax rate and only a portion of your income (not all of it).