However, you might worry that the IRS will also tax you at a higher rate and take more money out of your paycheck. You can put your mind at ease and enjoy your promotion and raise by understanding the process of changing to a higher tax bracket.

Understanding IRS Tax Brackets

The IRS taxes people using a system of progressive tax brackets. The tax brackets are routinely updated and readily available for you to view at IRS.gov. Nonetheless, their premise implies that lower income earners are taxed at a much lower rate than people who earn higher incomes.

 

In reality, higher income earners can benefit just as much from the progressive tax brackets as lower income earners primarily because higher earners get more use out of the deductions available to them. Likewise, the brackets divide these individuals' incomes into increments that are taxed at different rates rather than a lump sum.

Regardless of what you earn each year, you end up filing on what the IRS calls your taxable income. This amount of money is the sum that the federal government can actually take taxes out of at the end of the year.

If you are a higher income earner, this amount is not typically your entire year's salary but rather a more modest sum thanks to the progressive tax brackets. For example, according to the brackets used in 2011, if you were single that year the first $8375 of what you earned would be taxed at a rate of 10 percent. The next increment from $8376 to $34,000 would be taxed at 15 percent. 

The tax brackets actually help higher income earners keep more money out of their paychecks and certainly their raises by allowing them to make use of deductions. The extra income over the tax bracket threshold rather than the earner's total salary is always taxed at a higher rate.

W-4 Changes

While the progressive tax brackets allow you to lower your taxable income amount and keep more of the money that you earn from a raise and promotion, you likewise can keep more money by adjusting your W-4. The W-4, also called the Employee's Withholding Allowance Certificate, is a form that you fill out when you are first hired at a job. It identifies what tax deductions are you are entitled to as a taxpayer.

You should change your W-4 anytime your household undergoes changes, such as when you: 

• get married or divorced
• adopt or have a child
• experience a change in itemized deductions
• add or lose dependents in your household

The changes in your W-4 are reported to the IRS as well as your employer and could help you have less money taken out of your paycheck. They also can influence how much in taxes you pay at the end of the year as well as how much of a refund to which you could be entitled.

If you still have questions about the progressive tax brackets or want to know what kinds of deductions to include on your W-4, you should consult a tax professional before you file taxes. A tax pro will understand how the brackets apply to your income and can advise you on how to change your W-4 as needed at your job.

You no longer have to worry about how a promotion or raise will impact your tax returns. You can accept both with confidence by understanding the implications of changing to a higher tax bracket.