Why does a pay rise feel smaller than expected?

Raises are taxed at your marginal rate plus payroll deductions, so the gross headline figure is always larger than the net amount you receive. Understanding the effective tax on the incremental income helps set realistic expectations.

What is the marginal tax rate and why does it matter?

The marginal rate is the rate applied to the last dollar of income — and therefore to every dollar of your raise. Only the portion above each bracket threshold is taxed at the higher rate, not your entire salary.

Is a salary increase better than a one-time bonus?

A salary increase compounds over time, raising future raises, pension contributions, and any salary-linked benefits. A bonus is a one-off payment. For long-term wealth, a salary increase is almost always more valuable for the same gross amount.

What happens if a raise pushes me into a higher tax bracket?

Only the portion of income above the bracket threshold is taxed at the higher rate. The rest of your salary continues to be taxed at the existing rates. Bracket anxiety is a common misconception — crossing a threshold never reduces your net pay.

Should I negotiate salary or total compensation?

Total compensation includes base salary, retirement contributions, health cover, equity, and bonus. Improving employer retirement matching or health cover can be more tax-efficient than equivalent salary increases. Negotiate all components.

Budgeting

Pay Raise Calculator

See exactly how much a salary raise adds to your real take-home pay after tax — and compare it to taking a one-time bonus instead.

Country

Current Annual Salary

Raise Type

Raise Percentage

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Show bonus comparison: What if I got a one-time bonus instead?

Net Raise (Annual)

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Monthly Gain

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Effective Tax on Raise

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Full Breakdown

Bonus vs Raise Comparison

A salary raise compounds over time — future raises, pension contributions, and salary-linked benefits grow with your base. A bonus is valuable for immediate cash needs but provides no lasting income increase.

How It Works

Gross vs Net

The calculator computes full take-home pay at both your current and new salary using country-specific tax brackets, then finds the true net difference — the amount that actually lands in your account.

Marginal Rate

Your raise is taxed at your marginal rate — the rate that applies to the highest slice of your income. The rest of your salary is unaffected. This is why raises net less than they appear on paper.

Bracket Crossing

If your raise pushes income into a new tax bracket, the calculator splits the raise and applies each rate to the correct portion. Only the slice above the threshold is taxed at the higher rate.

Bonus Alternative

A one-time bonus of the same gross amount is taxed at the supplemental or marginal rate. The tool shows the net bonus versus the annual gain from a permanent raise, helping you decide what to negotiate for.

Frequently Asked Questions

Raises are taxed at your marginal federal rate (22-37% for most workers) plus FICA (7.65%), meaning a $5,000 raise may add only $3,000-$3,500 to annual take-home pay. The raise is still valuable, but the net impact is always lower than the gross headline figure.

The marginal rate is the tax rate applied to the last dollar of income (and therefore to new income from a raise). If you are in the 22% bracket, each extra $1 of salary nets approximately $0.70 after federal tax and FICA. State income tax reduces this further.

A salary increase compounds over time (raises future raises, bonus targets, and 401k contributions based on salary percentage), while a bonus is taxed at a flat 22% supplemental withholding rate (may be under or over your actual rate). For long-term wealth, a salary increase is almost always more valuable.

Only the portion of income above the bracket threshold is taxed at the higher rate. A $5,000 raise crossing from the 22% to 24% bracket does not make all your income taxable at 24% — just the amount above the threshold. Bracket anxiety is often misunderstood.

Total compensation includes base salary, 401(k) match, health insurance, equity, and bonus. Sometimes improving benefits (employer 401k match, better health plan) is more tax-efficient than salary increases. Negotiate all components, not just base pay.

Income tax (20% basic or 40% higher rate) and National Insurance (8%) are deducted from the incremental income. A £3,000 gross raise in the basic rate band adds approximately £2,160 to take-home (28% effective deduction). Above £50,270 the deduction rises to around 42%.

Income above £50,270 is taxed at 40% higher rate plus 2% NI, meaning each extra £1 above the threshold keeps only around £0.58. Consider salary sacrifice into your pension to keep income below this threshold if possible.

The personal allowance (£12,570) tapers by £1 for every £2 of income above £100,000, creating an effective 60% marginal rate between £100,000 and £125,140. Salary sacrifice pension contributions are the most effective way to reduce income below this threshold.

Both are taxed at the same marginal income tax rate and NI rate. A salary increase compounds over time (higher future raises, pension contributions, mortgage borrowing capacity). A bonus is a one-off. Always prefer salary increases for long-term financial wellbeing.

You can agree with your employer to take part of your pay rise as a pension contribution via salary sacrifice. This reduces your National Insurance liability (and your employer saves NI too). Particularly valuable if the raise would push you into a higher tax bracket.

Income is taxed at marginal rates (up to 45%) plus the 2% Medicare Levy. A $5,000 gross raise in the 32.5% bracket adds approximately $3,275 to take-home. The LITO (Low Income Tax Offset) may also phase out, increasing the effective marginal rate above the headline rate.

The marginal rate includes income tax, Medicare Levy (2%), and any offset phase-outs. Between $37,500 and $45,000, the LITO phase-out adds an effective ~1.5% to the marginal rate. In the $45,001-$66,668 range, the LITO phase-out adds approximately 1.5% on top of the 32.5% rate.

The tax rate increases from 32.5% to 37% (plus 2% Medicare Levy = 39% effective) on income above $120,000. Additionally, the LITO has fully phased out by $66,668, so the marginal rate above $120k is 39%. Salary sacrifice into superannuation can reduce taxable income.

Both are taxed at the same marginal rate. A salary increase compounds (higher future raises, super guarantee contributions grow proportionally as SGC is 11.5% of salary). A bonus is one-off. Salary increases are more valuable long-term for the same gross amount.

Salary sacrificing (contributing additional super above the SGC) before the raise takes effect can maintain your taxable income at a lower bracket. Super contributions are taxed at only 15% inside the fund versus your marginal rate (32.5-45%+) outside. Very tax-efficient for middle and higher earners.

Federal income tax (15-33%), provincial tax (varies widely), CPP contributions, and EI premiums all reduce the gross raise. A $5,000 gross raise in Ontario may net only $2,800-$3,200 after all deductions. Combined marginal rates in Ontario exceed 50% above ~$220,000.

Provincial income tax varies from approximately 6% (Alberta) to 21%+ (Quebec). The combined federal and provincial marginal rate on a $90,000 salary in Ontario is approximately 43.41%, while in Alberta it is 36%. Location significantly affects take-home pay.

Both are taxed at the same combined marginal rate. A salary increase grows future raises, RRSP contribution room (18% of earned income), and CPP contributions. A lump-sum bonus deposited into an RRSP can reduce the tax payable. Salary increases are more valuable for long-term wealth building.

Only the income above the threshold is taxed at the higher rate. Moving from the 20.5% to 26% bracket does not make all income taxable at 26%. However, combined with provincial tax, crossing federal brackets can mean marginal rates jump 5-7 percentage points on the incremental income.

RRSP contributions reduce taxable income dollar for dollar. If a raise or bonus pushes you into a higher bracket, contributing the raise amount to an RRSP in the same year defers the income to withdrawal (usually at a lower retirement rate). Contribution room is 18% of prior year earned income up to $31,560 (2024).

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