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More than half of Americans earning more than $100,000 a year say they're living paycheck to paycheck, according to a report from PYMNTS and LendingClub. This may be a result of a sneaky behavioral phenomenon called lifestyle creep, which is when a person's spending habits expand as their income rises. The rise in the cost of living complicates matters, as incomes have not kept up with inflation. Watch the video above to learn more about why Americans struggle to keep money in their pockets.
Wait I think I figured out how people think it works. If you don’t understand tax brackets and think that your entire income is taxed at the new rate, there are some cases that could a net loss. That’s not how taxes work anywhere in the US to my knowledge.
Let’s say you have a gross income of 10,000 because that’s a nice round number. And you pay 10% of that in cases, because that’s also a nice round number. Your net take home is $9000.
Let’s say you then get a huge pay raise to 20,000. And in this incorrect model of taxation, that puts you in a new tax bracket of 70%. You would then take home 20,000 * .3 = $6000, which is less than your net was with a base of 10,000.
But, again, that’s not how tax brackets work so far as I’m aware anywhere in the US.
What would actually happen is the first 10,000 would be taxed at its rate. 10% in this case. You’d pay that $1000. If the next bracket went from 10,001 to 20000 and was at 70%, you’d pay 7000 of that chunk. So your net take home would be 9000 + 3000 = $12,000, which is definitely more than the $9000 you took home with a gross of 10k. Except the real numbers are different, filing status matters, and there’s different incomes and investments that complicate things. Here are some numbers: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Progressive taxation should be taught everywhere if it’s not. I think I learned it in like 10th grade, but i’m old and my memory is foggy.
Wait I think I figured out how people think it works. If you don’t understand tax brackets and think that your entire income is taxed at the new rate, there are some cases that could a net loss. That’s not how taxes work anywhere in the US to my knowledge.
Let’s say you have a gross income of 10,000 because that’s a nice round number. And you pay 10% of that in cases, because that’s also a nice round number. Your net take home is $9000.
Let’s say you then get a huge pay raise to 20,000. And in this incorrect model of taxation, that puts you in a new tax bracket of 70%. You would then take home 20,000 * .3 = $6000, which is less than your net was with a base of 10,000.
But, again, that’s not how tax brackets work so far as I’m aware anywhere in the US.
What would actually happen is the first 10,000 would be taxed at its rate. 10% in this case. You’d pay that $1000. If the next bracket went from 10,001 to 20000 and was at 70%, you’d pay 7000 of that chunk. So your net take home would be 9000 + 3000 = $12,000, which is definitely more than the $9000 you took home with a gross of 10k. Except the real numbers are different, filing status matters, and there’s different incomes and investments that complicate things. Here are some numbers: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Progressive taxation should be taught everywhere if it’s not. I think I learned it in like 10th grade, but i’m old and my memory is foggy.