Does my net paycheck decrease as the year goes on due to tax brackets filling up?
Most countries with income tax, including the USA, design their withholding system so that in straightforward cases, tax is withheld from each month's paycheck on an annualized basis: tax for a month is calculated on the assumption that you will keep earning the same monthly amount for the rest of the year, and the withholding is set so that the tax is spread evenly across the year. Another way of putting that is that in practice you only get the tax brackets allocated proportionately throughout the year - so up till the end of August you'll only have been assigned 8/12 of the $37450 bracket, and so on. So if your income doesn't change and your general tax affairs don't change, your paycheck also shouldn't change. If your income is irregular or changes during the year then things can get more complicated. As other answers have noted, withholdings are calculated according to tables that normally just take into account that specific month's income. There are various possible changes to your tax affairs that might cause the withholdings to change. For example there'd be an impact from any change in your contributions to tax advantaged things like health insurance or retirement, health or education savings. You might also use form W-4 to change your withholdings yourself. Note that even with a regular income that doesn't change through the year, you might find yourself either owing money or being owed a refund when you file your taxes after the end of the year. It's worth making sure that your W-4 accurately records the allowances you are entitled to, to minimize or eliminate this adjustment. If your payroll payments are the same each period, you will generally have the same net pay per period.  Some things that can cause variations: If your employer puts special payments in a specific paycheck (such as a quarterly or annual bonus, or a vacation payout) this can increase the percentage held from that specific paycheck.  The IRS publishes lookup tables, and your payroll system should withhold the amount in the lookup table.   If you get a raise midyear, your new payroll withholding rate may increase based on the gross pay amount.   http://www.irs.gov/pub/irs-pdf/p15.pdf "H.R. basically consults Publication 15 (this is the link to 2015) to determine how much to hold, based on filing status, exemptions, and pay amount. What's described here is a form of estimation, or, in other words, H.R. withholds what would be your actual taxes, dividing across the number of paychecks you receive. Assuming your gross pay and exemptions do not change, this usually results in a zero-sum for taxes owed (you will receive nothing, and owe nothing). As you can see from the charts, the year is basically broken down into equal tax units that reflect how much you would owe if you worked at that bracket all year. This estimation works best when you have steady hours from check to check. In other words, your taxes are based on the estimate of what you'd make if you earned that much all year, scaled down to the time frame (e.g. 1/52 if you are paid weekly, or 1/26 if you paid biweekly). They do not go ""up"" near the end of the year, because they're estimated in advance. You don't move up a tax bracket, but are instead taxed at a particular bracket every paycheck. There's also other forms of estimation mentioned there, but basically follow the same scheme. Note that all estimation forms are just that-- estimates. It's best to use a calculator and compare your current taxes whenever a significant change occurs-- a raise, a new child, getting married or divorced, etc. You'll want to be able to alter your exemptions so that enough taxes are coming out. That's also the reason for the ""withhold extra"" box, so that you can avoid owing. For example, if you're making $44 a week for the first 26 weeks, and then you make $764 a week for the second 26 weeks of the year, you'll end up with an actual tax liability of $2,576.6, but end up paying only $2,345.20. You would owe $231.40. Of course, the actual math is a lot more complicated if you're an employee paid by the minute, for example, or you have a child, go to college, etc. Paychecks that vary wildly, like $10,000 one week and $2,000 the next tend to have the hardest-to-predict estimates (e.g. jobs with big commission payouts). You should avoid living check-to-check with jobs that pay this way, because you'll probably end up owing taxes. Conversely, if you've done your estimates right and you're paid salary or exactly the same number of hours every week, you'll find that the taxes are much easier to predict and you can usually easily create a refund situation simply by having the correct exemptions on your check. So, in summation, if your check falls in the 25% category (which is, of course, 25% above the tax bracket break point), you're already paying the correct amount, and no further drop in your check would be expected." It seems that you are misunderstanding how your taxes are calculated. You seem to be under the impression that once you pass $37,450 annual income, ALL of your income will be taxed at 25%. However, in reality, only the income you earn above that amount will be taxed at 25%. You can use this chart to determine exactly how much federal tax you will pay;  As you can see, if you earned, $37,500 in a year, you would only be charged 25% taxes on $50 (and you will pay 15% on the amount between $9226 and $37450, and 10% on the amount from $0 to $9225, which is $5126.25 when summed together). In general no, if you just have one employer and work there with the same salary for the whole year.  Typically an employer does tax withholding by extrapolating your monthly income to the entire year and withholding the right amount so that at the end, what is withheld is what you owe.  It's not a surprise to them when your income crosses a tax bracket threshold, because they knew how much they were paying you and knew when you would cross into another bracket, so they factored that in. If you have multiple jobs or only worked for part of the year, or if your income varied from month to month (e.g., you got a raise) there could be a discrepancy between what is withheld and what you owe, because each employer only knows about what it's paying you, not what money you may have earned from other sources.  (Even here, though, the discrepancy wouldn't be due to the tax brackets per se.)  You can adjust your withholdings on form W-4 if needed, to tell the employer to withhold more or less than they otherwise would. No, you will (generally speaking) not see a decrease in your net earnings from crossing a tax bracket: This means that your highest marginal rate (the top bracket you fall into) only applies to the portion of your income that is in that bracket, not your total income. This helps ensure that your total tax burden does not increase measurably from crossing a tax bracket. Be aware that you can still see measurable changes in your total taxes due if increases in income make you no longer eligible for certain deductions and/or benefits that were otherwise reducing your tax burden, but this is not the same as how changes in your highest marginal rate affect your overall average tax rate. Note that when you see a rate table such as the one on efile.com's federal income tax rates page or on Wikipedia's Income tax in the United States page, the rates listed are for each segment of income, not for your overall income: In other words the 15% rate below (for 2014, filing single) only applies to the portion of your income falling between the listed numbers, not to income below it or above it: that would be calculated under the respective rates given. You can use the i1040tt tax tables to gain a sense of how this works in practice: (The linked resource is for 2014 taxes) The threshold in 2014 for the 25% rate vs 15% was $36,900. Using the linked table, if you were single and made between 36,850 and 36,900 in gross income, your tax liability before other considerations was $5,078. If you made between 36,900 and 36,950, your base tax liability was $5,088.
The taxes that are deducted from you paycheck are estimated from the expected annual income you receive from the employer. In the same way, the employer will deduct from that expected annual income the tax deductions you would get for the number of dependents you specify. Hence your net income will be lower, your annual tax obligation also, which can than be calculated down to the period of your paycheck. "Yep. You're single, you're possibly still a dependent on your parent's taxes (in lieu of rent), and you're finally bringing home bacon instead of bacon bits. Welcome to the working world. Let's say your gross salary is the U.S. median of $50,000. With bi-weekly checks (26 a year; common practice) you're getting $1923.08 per paycheck. In the 2013 ""Percentage Method"" tax tables, here's how your federal withholding is calculated as a single person paid biweekly: Federal taxes are computed piecewise; the amount up to A is taxed at X%, then the amount between A and B is taxed at Y%, so if you make $C, between A and B, the tax is (A*X) + (C-A)*Y. The amount A*X is included in the ""base amount"" for ease of calculation. Back to our example; let's say you're getting $1923.08 gross wages per check. That puts you in the 25% marginal bracket. You pay the sum of all lesser brackets (which is the ""base amount"" of the 25% bracket), plus the 25% marginal rate on every dollar that falls within the bracket. That's 191.95 + (1923.08 - 1479) * .25 = 191.95 + (444.08 * .25) = 191.95 + 111.02 = $302.97 per paycheck. The ""effective"" tax rate on the total amount, as if you were being charged a flat tax, is 15.75%, and this is just for the federal income tax. Add to this MA state income taxes (5.25% flat tax), FICA (aka Medicare; 1.45% flat) and SECA (aka Social Security; 6.2% up to a ""wage base"" that $50k doesn't even approach), and your effective tax rate on each dollar you earn is 15.75% + 5.25% + 1.45% + 6.2% = 28.65%. This doesn't include any state unemployment taxes that may be withheld separately, but as the rate I come up with is pretty darn close to what you've figured (meaning I slightly overestimated your gross income and thus your effective tax rate), my bet is that SUTA's either employer-paid in MA, or it's just part of MA state income tax. It gets better, at least at the federal level: The amount of your state income taxes is tax-deductible at the federal level if you itemize your deductions. That may not be a factor for you as you'd have to come up with more than $6,100 of other tax-deductible expenses to make itemizing the better option than taking the standard deduction (big-ticket items are mortgage expenses other than principal payments, hospital stays such as for childbirth or major accident, and state and local taxes such as sales, property and income). If you can claim yourself as a dependent (meaning your parents can't), then $150 of each check ($3,900 of your annual salary) is no longer taxed for federal withholding, lowering the amount of money taxed at the 25% marginal rate. You effectively save $37.50 biweekly ($975 annually) in taxes. Get married and file jointly, and your spouse, her personal exemption, and an extra standard deduction amount (if you don't itemize) go on your taxes. The tax rates for married couples filing jointly are also lower; they're currently calculated (or were in 2012) to be the same as if two equal earners were to file separately, so if your spouse doesn't work, your taxes on the single income are calculated at the rates you'd get if you earned half as much. It doesn't work out to half the taxes, but it is a significant ""marriage advantage"". Have kids, and each one is another little $3,900 tax write-off. It's nowhere near the cost of having or raising the child, but it helps, and having kids isn't about the money. Owning a home, making charitable deductions, having medical expenses, etc are a toss-up. The magic number in 2013 is $12,200 for a married couple, $6,100 for a single person. If your mortgage interest, insurance premiums, property taxes, medical expenditures, charitable donations, any contributions from your take-home pay to a tax-deferred savings account (typically these accounts are paid into by your employer as a ""pre-tax deduction"" and never show up as taxable income, but you could just as easily move money from your take-home pay into tax-deferred savings) and any other tax-deductible payments add up to more than 12 large, then itemize. If not, take your standard deduction. As a single taxpayer just starting out in life, you probably don't have any of these types of expenditures, certainly not enough to give up the SD. I did the math on my own taxes in 2012, and was surprised at how little the government actually gets of my paycheck when all's said and done. Remember back in the summer of 2012 when everyone was mad at Romney for making millions and only paying an effective income tax rate of 14%, which was compared to the middle class's marginal rate of 25-28%? Well, my family of 3, living on a little more than the median income from one earner (me), taking the married standard deduction, three personal exemptions, and a little extra for student loan interest, paid an effective federal income tax rate of something like 3.5%. Of course, the FICA and SS taxes don't allow any deductions (not even for retirement savings), so add in the 4.2% SS (in 2012) and 1.45% FICA and the full federal gimme was more like 9-10%." Timing differences would still all come out in the wash. Might reduce it one year but over a few years it's essentially the same. It's becoming harder to create situations where big timing differences can apply. And generally (although not in every case) companies are seeing the bad press associated with not paying taxes and are being relatively less aggressive than in the past.   There's a lot too it but I get annoyed by people saying companies only make donations to avoid tax. I've posted on it before and it's a silly view. ??  Edit: that's what I thought. Unless there is some specific tax code that I don't know about, there's no way to pass through money to the next year. But if someone on Reddit is saying something and quoting a tax law, I'd at least like to see it. Tax brackets refer to the range of taxable within which you fall. An income tax bracket usually refers to federal or state tax, not the combined rate. I have put here the tax brackets for 2016 for IRS and State of California.  https://www.irs.com/articles/2016-federal-tax-rates-personal-exemptions-and-standard-deductions  https://www.ftb.ca.gov/forms/2016-california-tax-rates-and-exemptions.shtml According to those, a taxable income of 100,000USD would fall in the 28% bracket for the IRS and 9.30% for State of California. The combined rate is therefore 37.3%. However, this does not mean you would pay 37,300USD. First of all, your applicable tax rate applies only for each dollar in your tax bracket (e.g. 28% * 8,849USD for IRS). Therefore, to calculate your combined taxes you would need to do:  Therefore, your effective tax rate would be much lower than the combined tax rate of 37.3%. Now do note that this is an example to illustrate tax brackets and is nowhere near the amount of taxes you would be required to pay because of various credits and deductions that you would be able to benefit from. Edit: As suggested in the comments, a note on marginal tax rate (referred to here as combined tax rate). This is the rate of taxes paid on an additional dollar of income. Here, every additional dollar of income would be taxed at 37.3%, leaving you with 62.7 cents. "Yes, it is, but first let me address this sentence: my current withholding on my W4 is already at 0 so I can't make it   lower You definitely can make it lower. On W4, in addition to the allowances (that what you meant by ""already at 0""), there's also a line called ""additional withholding"". There, you put the dollar amount that you want your payroll to withhold from your paycheck each pay period. So the easiest way to ""send"" a one time payment to the IRS, if you're a W2 employee, would be to adjust that line with the amount you want to send, and change it back to 0 next pay period. You can also send a check directly to the IRS - follow the instructions to form 1040-ES. That is exactly what that form is designed to be used for." Unfortunately, the tax system in the U.S. is probably more complicated than it looks to you right now. First, you need to understand that there will be taxes withheld from your paycheck, but the amount that they withhold is simply a guess.  You might pay too much or too little tax during the year.  After the year is over, you'll send in a tax return form that calculates the correct tax amount.  If you have paid too little over the year, you'll have to send in the rest, but if you've paid too much, you'll get a refund.  There are complicated formulas on how much tax the employer withholds from your paycheck, but in general, if you don't have extra income elsewhere that you need to pay tax on, you'll probably be close to breaking even at tax time. When you get your paycheck, the first thing that will be taken off is FICA, also called Social Security, Medicare, or the Payroll tax.  This is a fixed 7.65% that is taken off the gross salary.  It is not refundable and is not affected by any allowances or deductions, and does not come in to play at all on your tax return form. There are optional employee benefits that you might need to pay a portion of if you are going to take advantage of them, such as health insurance or retirement savings.  Some of these deductions are paid with before-tax money, and some are paid with after tax money. The employer will calculate how much money they are supposed to withhold for federal and state taxes (yes, California has an income tax), and the rest is yours. At tax time, the employer will give you a form W-2, which shows you the amount of your gross income after all the before-tax deductions are taken out (which is what you use to calculate your tax).  The form also shows you how much tax you have paid during the year. Form 1040 is the tax return that you use to calculate your correct tax for the year.  You start with the gross income amount from the W-2, and the first thing you do is add in any income that you didn't get a W-2 for (such as interest or investment income) and subtract any deductions that you might have that are not taxable, but were not paid through your paycheck (such as moving expenses, student loan interest, tuition, etc.)  The result is called your adjusted gross income. Next, you take off the deductions not covered in the above section (property tax, home mortgage interest, charitable giving, etc.).  You can either take the standard deduction ($6,300 if you are single), or if you have more deductions in this category than that, you can itemize your deductions and declare the correct amount. After that, you subtract more for exemptions.  You can claim yourself as an exemption unless you are considered a dependent of someone else and they are claiming you as a dependent.  If you claim yourself, you take off another $4,000 from your income. What you are left with is your taxable income for the year.  This is the amount you would use to calculate your tax based on the bracket table you found. California has an income tax, and just like the federal tax, some state taxes will be deducted from your paycheck, and you'll need to fill out a state tax return form after the year is over to calculate the correct state tax and either request a refund or pay the remainder of the tax.  I don't have any experience with the California income tax, but there are details on the rates on this page from the State of California. No.  In a marginal tax system, only additional dollars that push you into a higher bracket are taxed at that higher rate.  If you would pay 15% on $73800, then when you earn over $73800, you will still only pay 15% of the $73800, plus 25% of the extra amount over $73800.  As far as a marginal income tax affects things, you cannot decrease your net income by increasing your salary.  (There can be other potential reasons to keep your income down besides income taxes, as asked in this question, but as the answer there suggests, these often aren't great reasons either.) As far as I know, every income tax system that has differing tax rates works this way.  That is, I'm not aware of any country with an income tax system where you can decrease your net earnings by moving into a higher bracket. "I had been pondering this recently myself too.  This question motivated me to do a little research.  It appears that what happens is that (take a deep breath) the capital gain does push you into the next tax bracket, but the capital gain is always interpreted as the ""last"" income you received, so that if your non-capital-gains income is less than the threshold, it will all be taxed in the lower bracket, and only your capital gain will be taxed in the higher bracket (but it will be taxed at the capital-gains rate of that higher bracket). In short, a capital gain can only push capital gains into higher capital-gains tax brackets; it cannot push ordinary income into higher ordinary-income tax brackets.  In addition, the amount of the capital gain is taxed in a marginal fashion, such that any portion of the gain that will ""fit"" into a lower bracket will be taxed at a lower level, with only the topmost portion of any gain being taxed at the top rate. This site is one claiming this: Will capital gain or dividend income push my other income into a higher tax bracket? No, the tax rates apply first to your “ordinary income” (income from sources other than long-term capital gains or qualifying dividends) so these items that are taxed at special rates won’t push your other income into a higher tax bracket. If my ordinary income puts me in the 15% tax bracket, can I receive an unlimited amount of long-term capital gain at the 0% rate? No, the 0% rate applies only to the amount of long-term capital gain and dividend income needed to “fill up” the 15% tax bracket. For example, if your ordinary income is $4,000 below the figure that would put you in the 25% bracket and you have a $10,000 long-term capital gain, you’ll pay 0% on $4,000 of your capital gain and 15% on the rest. There are several Bogleheads forum threads (here, here, here and here) that also touch on the same issue. The last of those links to the IRS capital gains worksheet.  I traced through the logic and I believe it confirms this.  Here's how it works: (In conclusion, we now know Mitt Romney's secret.)" "This would never apply for tax ""brackets"". It's not as though making an extra dollar will put you into an entire separate bracket, the IRS isn't that bad. They bump up the ""brackets"" every $50, so you will never turn down a raise because it would cause you to lose income. However if your raise would preclude you from contributing to your IRA because it pushes you over $110,000 then yes, you could turn it down or explain to your boss that it would need to be just a little bit higher to cover your IRA contribution loss." You have interpreted the instructions correctly. The issue with two jobs at the same time, is that that second job will be taxed at the highest rate; but the second employer has no idea what the other position is paying you.  If you make enough to be in the 15% tax bracket for your main job that means: some of the money from each paycheck is  taxed zero; some is taxed at 10% and the last dollars are taxed at 15%. But the second job should withhold for taxes to cover all the income at 15%. To avoid problems you should look at the tax form you are filling out this year. Look at the total tax you paid. Not the refund or the amount you owed when you filed but your total tax paid. The government allows a safe harbor if you make sure that in 2016 you have the same amount withheld this calendar year. If that isn't enough, you will owe money in April 2017, but you will not have to pay a penalty. After you have a couple of paycheck from your main employer, check to see that if you work the rest of the year at that same rate that the federal withholding will make the safe harbor. If you will make it,  you don't have to worry about the penalty. If you will fall short, adjust the w-4 accordingly. No, absolutely not.  Income tax rates are marginal.  The tax bracket's higher tax rate only applies to extra dollars over the threshold, not to dollars below it.  The normal income tax does not have any cliffs where one extra dollar of income will cost more than one dollar in extra taxes. Moreover, you are ignoring the personal exemption and standard deduction.  A gross salary of $72,000 is not the same as taxable income of $72,000.  The deduction will generally be $12,200 and the exemptions will be $3,900 for you, your spouse, and any kids.  So married-filing-jointly with the standard deduction will get an automatic $20,000 off of adjusted gross income when counting taxable income.  So the appropriate taxable income is actually going to be more like $52,000. Note that getting your compensation package reshuffled may result in different tax treatment.  But simply taking a smaller salary (rather than taking some compensation as stock options, health insurance, or fringe benefits), is not a money-saving move.  Never do it. "You don't offer any specifics, so I'm guessing a little about what you're talking about, but here's a few thoughts: Remember that all tax-related transactions are reconciled when you file. All of your activity for the year is totaled up and (for the most part) when during the year things happen is irrelevant.   Your gross taxable income is calculated (which will exclude any ""pre-tax"" activity, deduction applied (which will any include and ""post-tax"" deductions), tax liability calculated, and withholdings subtracted to get your net tax due.  Whether you have ""pre-tax"" activity and less tax withheld or ""after-tax"" activity with a deduction and reduce your net tax, the net effect should be the same." Their reputation is still stellar, just because people we're dumb enough to buy in at 38$ doesn't reflect on facebook, it reflects on the underwriters.  You think FB would have said no with the IPO price had been 100$? No evidence of 'elite prep school' so far based on my google search. Princeton and Goldman Sachs take a ton of normal people (extremely hardworking and clever of course but it's not about coming from the right family). It's not Morgan Stanley