What a Raise Is Really Worth After Taxes

In the example below, about 62 cents of each extra dollar of salary reaches the bank, and your share depends on your federal bracket, your state and how much goes into your 401(k). A raise is taxed at your marginal rate, the rate on your top dollars, not your average rate. And moving into a higher federal bracket never reduces your take-home pay, because only the income above the bracket line is taxed at the new rate. The quickest way to see your real number is to run your salary before and after the raise through a take-home pay calculator.

A $5,000 raise, before and after

Here's a single filer going from $70,000 to $75,000 in 2026, paid every two weeks, putting 5% into a traditional 401(k), with a flat 5% state income tax as an illustration. From our take-home pay calculator:

So $3,085 of the $5,000 reaches your bank account, about $119 more per paycheck. Another $250 goes into your 401(k), which is still your money. Counting both, you keep $3,335, or two-thirds of the raise.

Marginal and average rates: why both matter

This person's average federal income tax rate after the raise is about 9% of salary ($6,845 on $75,000). But the raise itself was taxed at 22%. Here's why: after the $16,100 standard deduction and the 401(k) deferral, their taxable income at $70,000 is exactly $50,400. Under the IRS's 2026 tax brackets, that's the top of the 12% bracket for single filers. Every dollar of the raise lands in the 22% bracket.

That doesn't mean their whole income is now taxed at 22%. At $75,000 their taxable income is $55,150, so only the top $4,750 sits in the 22% bracket. The first $12,400 is still taxed at 10% and the next $38,000 at 12%, exactly as before. A bigger bracket label on the same income is why people wrongly fear a raise could leave them worse off.

Use the marginal rate to judge a raise, overtime or a side gig. Use the average rate to understand your total tax bill. Mixing them up leads to two opposite mistakes: turning down extra work because you think it will all be taxed at the higher rate, or budgeting a raise as if it arrives nearly untaxed.

Add up the marginal rates in the example and you get 22% federal, 7.65% for Social Security and Medicare, and 5% state. That's why the take-home share is well under what the average rate suggests.

Three things that change the answer

Social Security stops at the wage base. The Social Security Administration puts the 2026 wage base at $184,500. Above it, the 6.2% stops. In the calculator, going from $180,000 to $190,000 (single, 5% 401(k), no state tax) adds only $279 of Social Security, and take-home pay rises by $6,796. Medicare works the other way: according to the IRS, an extra 0.9% applies to wages above $200,000 for single filers and $250,000 for married couples filing jointly.

Your state. State income tax rules vary, and some states use their own brackets. The 5% in the example is only an illustration; look up your own state's rules and enter its rate.

Your 401(k) percentage grows with your pay. Deferrals are a share of salary, so a raise automatically raises your contribution. If your employer matches, the match on that extra pay rises too, up to the plan's cap; the 401(k) match calculator shows that on a 50% match up to 6%, deferring 6% on $75,000 earns $2,250 of match, up from $2,100 at $70,000.

The traps

The bonus that looks over-taxed. IRS Publication 15 lets employers withhold a flat 22% on supplemental wages such as bonuses (37% on amounts over $1 million). If your real top rate is 12%, the extra is credited when you file. If it's 24% or higher, 22% withholding may be too little, and you could owe.

Withholding that falls behind. Your employer adjusts withholding automatically, but if you have two jobs or a working spouse, a raise can push the household's combined income into a higher bracket that neither paycheck accounts for. Rerun the IRS Tax Withholding Estimator after any sizeable raise.

Spending the gross figure. A $5,000 raise planned as about $417 a month is really about $257 a month in this example. Rebuild your budget with the take-home figure in the 50/30/20 budget calculator.

What we'd do with a raise

Save part of it before you get used to it. In the example, raising the 401(k) from 5% to 6% at the new salary still leaves take-home pay of $54,557.50: $2,537.50 more than before the raise, with $4,500 a year going into the 401(k) instead of $3,500.

1. Next 10 minutes: run your current and new salary through the take-home pay calculator and note the difference per paycheck.
2. Today: decide what share of that difference goes to savings, and change your 401(k) rate before the first raised paycheck.
3. This week: if you have more than one income in the household, check withholding with the IRS estimator.

When the rules of thumb break

This logic applies to salary. It weakens if your raise pushes you past an income limit for a benefit, credit or subsidy that phases out as income rises, because losing that benefit acts like an extra tax on the raise. Those limits depend on the program and your household, so check any you rely on before accepting a raise that crosses one. Just as important: if you're self-employed, different payroll tax rules apply to your extra income, and the figures above don't. For large or complicated changes, such as a promotion with equity or a move to another state, an hour with a tax professional is money well spent.

Sources

1. Internal Revenue Service: IRS releases tax inflation adjustments for tax year 2026
2. Social Security Administration: Contribution and Benefit Base
3. Internal Revenue Service: Publication 15 (2026), Employer's Tax Guide
4. Internal Revenue Service: Questions and answers for the Additional Medicare Tax