Tax Bracket - best to earn less than next bracket?
Personal Allowance Up to £12,500 0 percent
Basic rate £12,501 to £50,000 20 percent
Higher rate £50,001 to £150,000 40 percent
Additional rate over £150,000 45 percent
Example. Would it make sense to earn £49k rather than £50k because a person on £49k would earn more after tax than being on £50k
- JudyLv 73 months ago
No not at all. Only the amount or the cutoff is taxed at the higher rate.
- mercedesLv 73 months ago
When you get to the 40% tax bracket you keep 60%. If you don't want to do than then quit.
- SCATTY cLv 63 months ago
Doesn't work like that.
You earn 49k you pay 20% tax.
You earn 51k. You pay 20% tax on everything up to 50k. And 40% on the 1k above that.
So, even with paying 40% tax on a small part of your income, you would still earn more than someone earning 49%.
Like others have said, you have misunderstood how the tax brackets work, and assume you pay the 40% on all your income. You only pay higher rates on the part of your income that falls into that tax bracket.
So let's say you earned 160k a year.
You pay 20% on earnings up to 50k
You will pay 40% on earnings from 50.1k to 150k
And then get hit with 45% tax on the last 10k of your salary.
Hope that makes sense!
- UserLv 73 months ago
Well...what you're concerned about here is "take home pay".
BUT I *think* you might be looking at the chart wrong.
Probably the MEANING is as follows:
first 12,500 - no taxes
amount between 12,500 and 50,000 - 20% tax
amount between 50,000 and 150,000 - 40% tax
a person making 50,000 would pay
(50,000 - 12,500) x 20% = 7,500
take home = 42,500
while a person making 51,000 would pay
(50,000 - 12,500) x 20% + (51,000 - 50,000) x 40% = 7,900
take home = 43,100
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- Wayne ZLv 73 months ago
You can't fall behind by making more money. Only the amount above the bracket end point is taxed at the higher rate.
You make £52,000
1) The first £12,500 is at 0%
2) The next £37,500 is at 20% (£50,000 less £12,500)
3) Only the final £2,000 is taxed at 40% (£52,000 less £50,000)
- Anonymous3 months ago
You're misunderstanding how tax brackets work.
You only pay the higher percentage of tax on the amount you earn that is over the threshold for that bracket.
Meaning if you make 52k, you're only going to pay the higher tax rate on the 2k that's over the 50k cut off. You'll still pay the lower rate for the income that fits into the lower bracket.
The bigger your tax bill, the better off you are.