The Marginal Tax Bite: Why Raises Feel Smaller
When you negotiate a $5,000 raise or an 8% salary increase, it is easy to divide that number by 26 and assume your bi-weekly check will increase by $192. However, payroll software applies marginal withholding formulas that take a larger bite out of incremental earnings.
1
Highest Marginal Bracket
Your raise sits on top of your current income, meaning 100% of the raise is taxed at your top federal bracket (e.g. 22% or 24%).
2
FICA Payroll Flat Taxes
Unless you earn over the Social Security wage base cap ($176,100), Social Security (6.2%) and Medicare (1.45%) immediately deduct 7.65%.
3
State Income Taxes
Localized state withholdings further reduce your incremental net gains depending on whether your state levies progressive or flat rates.