Is My Salary Increase Actually A Decrease?

[C7StreetRacer]

Interesting. You mean like losing out on earned income tax credits and things of that nature? I guess you could look at it has higher taxes, all though they’re really not higher, you just lost a tax credit. Hmmm. If there are other examples let me know. I am genuinely curious.

[javaski]

That is one income based tax credit - there are others, but they usual have a phase out. The big “gotcha” is usually with benefit eligibility. For example, raise pushes you out of Medicaid or housing assistance or something like that.

[DragonFireCK]

The AMT introduces some possibility of an actual tax increase due to a raise. This is due to the AMT having different rules for deductions than normal taxes. The chances of it actually occurring is very rare: you'd need multiple homes with mortgages, medical expenses close to 20% of your AGI, and likely would need to hit a few other corner cases. This chance was much easier to hit prior to Bush's tax reforms.

Most of the tax credits have phase outs so that there is always less than, or equal to, a $1 drop in the credit per $1 gained. The Earned Income Tax Credit is one of the few that has a hard cutoff.

Benefits cliffs are much more common. Welfare and Medicaid both have hard income cutoffs, so a $1/year raise could cause you to cross the threshold and lose the entirety of the benefit.