How is the IRS Marginal Tax Rate calculated when crossing income thresholds?

I just found out I'm getting a promotion that will bump my salary to about $103k/year, which I'm super excited about! But I was looking at the tax brackets and noticed that $100,525 is the threshold for jumping into the 24% tax bracket. I'm a little worried about how this works - is that $100,525 simply the cutoff where ALL my income suddenly gets taxed at 24%? Or is it just the amount over that threshold that gets taxed at the higher rate? I'm trying to figure out how much of my raise I'll actually keep after taxes. My company HR person wasn't super clear when I asked. Anyone know how this marginal tax thing works? Will crossing this threshold wipe out a big chunk of my raise?

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18 comments

The Boss

•8M

The good news is that marginal tax rates don't work how you're fearing! Only the income ABOVE the threshold gets taxed at the higher rate. So in your case, only the amount over $100,525 would be taxed at 24%, while everything below that is taxed at the lower rates. This is how the "marginal" in marginal tax rate works - each "margin" or portion of your income is taxed at its corresponding rate. For example, your first chunk of income is taxed at 10%, then the next chunk at 12%, then 22%, and only the dollars above $100,525 would be taxed at 24%. So don't worry about your raise suddenly causing all your income to be taxed higher. You'll definitely still come out ahead financially with the promotion!

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The Boss

•8M

You've got it exactly right! You'd only pay the 24% rate on that $2,475 above the threshold. The IRS doesn't create "tax cliffs" where you suddenly lose money by making more. There are many good tax calculators online - I like the one at SmartAsset or the NerdWallet tax calculator. Both let you enter your income and see the breakdown by tax brackets. Yes, most states with income tax use the same marginal approach, though the rates and brackets are different from federal. Some states have flat tax rates where everyone pays the same percentage regardless of income, but most follow the marginal system.

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Evan Kalinowski

•8M

After stressing about similar tax bracket questions last year, I found this amazing tool at https://taxr.ai that breaks down exactly how marginal tax rates impact your specific situation. I was confused about how my overtime would affect my taxes, and the standard calculators weren't giving me the full picture. What I like is that it explains all the marginal tax stuff in plain English and shows exactly how much of your income falls into each bracket. It even lets you compare scenarios like "what if I get this raise" or "what if I contribute more to my 401k" to see the tax impact. Seriously made the whole tax bracket thing finally click for me.

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Evan Kalinowski

•8M

It handles all types of income including investments, dividends, and self-employment. You can enter your W-2 income, 1099 income, capital gains, etc. It shows how each type of income is taxed differently which was super helpful for me. This is definitely more than just a calculator - it actually explains WHY you're paying what you're paying and suggests ways to optimize. It handles both federal and state taxes, and even shows how certain deductions or credits might phase out as your income increases. The explanations were what made the difference for me in actually understanding my tax situation instead of just getting a number.

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Victoria Charity

•8M

Just wanted to update - I tried the taxr.ai site that was recommended here and it was exactly what I needed! I put in my salary, bonus structure, and some stock options I might exercise, and it showed me how each piece would be taxed. The visualization of the tax brackets made it super clear - I could literally see how much of my income fell into each bracket and what my effective tax rate would be. It also explained some deductions I hadn't considered that could lower my taxable income. Way better than the generic calculator I was using before. Definitely recommend if you're trying to understand marginal tax rates and how they apply to your specific situation.

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Oscar Murphy

•8M

I had a similar situation last year and spent HOURS trying to get through to someone at the IRS to confirm how my new income would be taxed. Literally couldn't get a human on the phone for days. Finally found https://claimyr.com and used their service to get connected to an actual IRS rep in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how the marginal rates would apply to my new salary and confirmed what others have said here - only the amount over the threshold gets taxed at the higher rate. They even helped me adjust my withholding so I wouldn't have a surprise tax bill. Totally worth it instead of stressing about whether I was understanding the tax brackets correctly.

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Oscar Murphy

•8M

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Ryan Andre

•8M

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I had a complicated tax question about marginal rates and some stock compensation that I couldn't figure out online. It actually worked exactly as described - I got connected to an IRS agent in about 20 minutes when I'd previously wasted hours hearing the "due to high call volume" message. The agent explained exactly how my different income types would be taxed at the various marginal rates. Totally changed my perspective on dealing with the IRS. Sometimes paying for convenience is worth it, especially during tax season when everyone's trying to call in.

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Lauren Zeb

•8M

One thing nobody's mentioned yet is that while marginal tax rates work as described above, there are other income-based thresholds that DON'T work that way. For example, certain credits and deductions phase out completely once you hit certain income levels. These aren't marginal - they're cliffs where you either qualify or you don't. Also remember that your taxable income isn't the same as your gross income. Contributing to a traditional 401k, HSA, or taking the standard deduction all reduce your taxable income, potentially keeping you in a lower bracket.

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Lauren Zeb

•8M

Around the $100k level, you might start seeing some phase-outs, but most aren't complete cliffs. Student loan interest deduction starts phasing out at about $75k (single filers) and is completely gone by $90k. The Roth IRA contribution starts phasing out around $125k and is fully eliminated around $140k. Increasing your 401k contribution is almost always a good strategy when you're approaching these thresholds. Not only does it lower your taxable income, but you're also increasing your retirement savings. For 2025, you can contribute up to $23,000 to a 401k if you're under 50, which could significantly reduce your taxable income and potentially keep you under these thresholds.

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