What Your Next Raise Is Actually Worth

A tax bracket tells you one thing: the rate charged on the slice of taxable income inside it. Your marginal rate is something larger — everything that changes when you earn one more unit of income. That includes the bracket, but it also includes contributions that have no ceiling, contributions that have one you are about to cross, a credit being withdrawn, an allowance being tapered, and a surtax starting.

There is no formula for the total, because the pieces interact. The only reliable way to find it is to calculate the whole thing at your current income, calculate it again with the extra, and subtract. That is what this page does, and why the breakdown shows each piece separately rather than a single number you have to trust.

The chart is not smooth, and the places where it jumps are worth knowing about.

In the United States, the Child Tax Credit is withdrawn at $50 for each whole $1,000 of income above $200,000, or $400,000 on a joint return — a flat 5% added to the marginal rate for as long as the withdrawal lasts, which is longer the more children you have. The Additional Medicare Tax adds 0.9% above $200,000, $250,000 filing jointly. The Net Investment Income Tax adds 3.8% to investment income once total income passes the same thresholds. Going the other way, Social Security stops at the $184,500 wage base, so crossing it lowers your marginal rate by 6.2%.

In the United Kingdom, the Personal Allowance is withdrawn by £1 for every £2 earned above £100,000, which produces an effective marginal rate of 60% across that stretch before it falls back to 45%. It is the steepest thing in the British system and it is not a bracket.

If your employer pays a bonus separately from your regular wages, US federal withholding on it is a flat 22% — not your bracket, not your marginal rate. Above $1 million of supplemental wages in a year the flat rate becomes 37%.

That flat rate is a withholding rule, not a tax rate. What the bonus actually costs is settled on your return, and the difference comes back as a refund or goes out as a bill. If your marginal rate is above 22% the bonus was under-withheld and you will owe; if it is below, you have lent the money interest-free until you file. Either way the payslip figure is not the answer, which is why both numbers are shown.