Persistent Myths I. The Great Income Tax Bracket Myth

It's probably this time of year, but there are certain myths a person hears again and again that are demonstrably false, but there's just no countering them.  It says something about the power of rumor over facts.

 If I get a raise, taxes will mean I'll take less home.

 Internal Revenue Service building in Washington D.C.  They aren't going to make you poor if you are rich.

Here's a really common one you hear this time of year, often in the form of a comment like this:  "I hope my new raise didn't bump me up in the next tax bracket, as the government will just be taking more of my money."

The gist of this one is a very persistent belief that once you go up a tax bracket, your entire income is taxed at that higher rate.  No, it isn't.  With our graduated tax system, only the income over each step in the bracket is taxed at that rate.  Income wise, it is always, always, always, better to make more income, no matter what tax bracket you jump up into.  It is never the case that the government will take more of your actual gross because your net increased.

People like this idea so much they just cannot be convinced otherwise, but the truth of the matter is that only the dollars in each income tax bracket are taxed at that rate.  Everyone, absolutely everyone, who pays taxes pays starting off at the lowest rate. Everybody.  And only the dollars that jump up into the next bracket are taxed at that next higher rate.

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Persistent Myths