Just wondering when looking at jobs putting me into higher tax brackets, if tax was say 20% for earning £30k, and £31k a year was taxed at 25%, would my first 30k of income be taxed at the 20% or my full salary taxed at 25%? And if so then how do you ever make jumping up to the next tax band viable?
In: Economics
Only the amount over the threshold is taxed at the higher rate. It’s virtually impossible to take home less after a pay rise due to the higher tax bracket – you’d have to be in a very unique situation with income support, benefits and tax credits that simultaneously expire.
As you’re in the UK you might want to try out this tax calculation tool, that also includes NI and student loan deductions:
[Listen to Tax Man](https://listentotaxman.com/)
Progressive tax brackets are only applied on the money inside the brackets… the ‘marginal’ income.
20% tax on £30k is £6k
If you make £31k, you pay 20% (£6k) on the first £30k and then 25% on the money greater than £30k.
25% of (£31k – £30k) is 25% of £1k which is £250.
So your total tax is £6250.
In this system, you always take home more if you make more.
Yes, you’re taxed IN brackets, not ACCORDING TO brackets. The higher rates only trigger for the portion ***in*** that bracket. Exactly like you said – only the bit above £30k would be taxed more.
What *can* happen is that you get other benefits (say discounts on essential stuff), and earning a more can disqualify you from that. So then your spendable income goes down, not because you’re paying extra tax, but because you’re receiving fewer benefits.
It’s the first one – your first 30,000 is taxed at the first tax bracket, that extra 1,000 you made is taxed as part of the second tax bracket.
Even if it were the other way, where you just get charged a flat percentage based on your total earnings, it’s still better to earn 50k and pay 25% on that than it is to earn 30k and pay 20% on that. But that’s not how progressive tax brackets work.
edit: That’s ignoring standard tax deductions and stuff, looks like lollersauce914 gave an even more precise answer factoring that in.
No, income up to £12,500 is not taxed. The next £37,500 is taxed at 20% etc. (cutoffs and percentages for the UK are from google).
* In the US they kick in at each level.
* If the the rate for $50,000 a year is A
* And the rate for $100,000 a year is B
* And the you made $120,000 last year:
* You pay the A rate on the first $50,000
* You pay the B rate on the rest.
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