r/pics Dec 08 '21 Helpful (Pro) 1 Silver 43 Gold 2 Helpful 80 Wholesome 30 Take My Energy 4 Take My Money 1

Explanation of taxes. rm: title guidelines

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92.5k Upvotes

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u/jer72981m Dec 08 '21 edited Dec 09 '21 Helpful Bravo Grande!

Yeah people also think a tax refund is the government paying them. It was your money, they're just giving it back. Lol

Edit: Yes some people do get more back in child credits etc. I'm speaking more generally about the fact that many people don't understand withholding and pay too much up front only to get it back later and spend it as if it's a gift, which is bad economics.

Thanks for the upvotes, surprised at the response!

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u/ToastNeo1 Dec 08 '21 Silver Helpful Wholesome Burning Cash

Exactly. They gave the government an interest free loan. Meanwhile, they're going to use their tax return to pay down their credit card debt...

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u/The_Wack_Knight Dec 08 '21

I showed a younger coworker how to change up how much was being taken each month and he was super excited. He was stoked that he was getting a couple hundred dollars more on his paycheck and was very grateful I helped him. Until tax return season came along, and he didn't get nearly as big of return than the year before. He only made a couple hundred dollars instead of a couple thousand. He complained that I didn't know what I was doing. I cant even...

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u/xasx Dec 08 '21

For people like that, they should always pay extra because they probably can’t manage their money. Most people are like this.

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u/jjschnei Dec 08 '21

Exactly. An interest free loan to the gov is a lot better than them spending it all on depreciating assets or, even worse, over spending it and wracking up debt.

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u/Joe_Jeep Dec 08 '21

Course a lot of folks totally blow the refund on stupid shit.

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u/rdmusic16 Dec 08 '21

I'd still rather see someone spend it on a tv or vacation than just accumulating/spending it on "$50 here, $20 there" kinda stuff over the year.

Obviously it's entirely up to the individual though, and is situation dependant.

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u/Quackagate Dec 08 '21

I work construction and it tends to be a bit seasonal. Sure over paying each week in taxes takes money out of my pocket at the time and gives the government an interest free loan. But I get a check that can be helpful when work has dried up due to the weather. Sure it would be better to either drop it in a savings account or invest it. But like others have said not everyone is good with money[sheepishly raises hand]

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u/GarbageAndBeer Dec 08 '21

You may not be good with money, but at least you know how taxes work.

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u/IamMrGoldy Dec 08 '21

This is why financial literacy needs to become more of a thing in high school. Also taxes should be automatically deducted so you shouldn't have to do it yourself every year

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u/GingerSnapBiscuit Dec 08 '21

Thats how it works in the UK. I can't imagine having to calculate my own taxes all the time, must be fucking annoying.

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u/JayFv Dec 08 '21

Not if you're self-employed in the UK. I keep good records and put 20% of my monthly profit into premium bonds. My accountant takes my records at the end of the year and they put it all into a tax return and tell me how much I need to pay. Then I cash out that amount in premium bonds. I know that 20% is overkill so at the end of the year I'll have a bit of a bonus that I can either cash out or leave as premium bonds.

It's not that hard it just requires a bit of organisation. Excel skills help.

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u/Gayporeon Dec 08 '21

How DO you change the amount taken out? Contact IRS? or is it through your employer? (assuming you're talking about the US 😅)

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u/ZZMonster_Ah Dec 08 '21

W-4 through your employer

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u/tall-americano Dec 08 '21

you have to complete a new w-4 form and typically submit to your employer. i’d ask HR, i know personally i can do it online through the payroll system.

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u/The84LongBed Dec 08 '21 edited Dec 08 '21

The worst part is my dumb ass figured this out and still do it.

Edit: by your responses at least I figured out I’m the dumbass. Yal dumb asses still trying to convince me to pay credit card interest while giving the govt a free loan.

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u/IcyDickbutts Dec 08 '21

2 things I stick to

1) live within my means

2) dont preorder videogames

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u/ReactsWithWords Dec 08 '21

3) Never get involved in a land war in Asia

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u/Morgnanana Dec 08 '21

4) Always pay your mercenaries

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u/H_Magus Dec 08 '21

5) General Winter always wins

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u/dmglakewood Dec 08 '21

6) Trix are for kids

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u/Real_King_Of_Nothing Dec 08 '21

7) Always go after the Lucky Charms

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u/M2ThaL Dec 08 '21

8) never trust a Sicilian when death is on the line

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u/AcceptableMistake7 Dec 08 '21

6) Never invade Russia during the winter

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u/TBone281 Dec 08 '21

Slightly less well known: 4) Never go in against a Sicilian when death is on the line!

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u/TooStonedForAName Dec 08 '21 edited Dec 08 '21

Unfortunately that first 1 just isn’t possible for some people; their needs are higher than their means.

Edit: For all the replies, yes some people live beyond their means - the person I replied to said this already. There is, however, a much larger chunk of the world for whom the financial cost of their needs outweighs their income. These are the people I was talking about. My monthly outgoings are nearly 1.5x my monthly incomings - my monthly outgoings aren’t credit cards or games, they’re tax, rent, insurance, commute; necessities. My country’s minimum wage doesn’t match the cost of living and the same is true for many.

ETA: 1.5x, not .5x

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u/GravityDAD Dec 08 '21

Unfortunately his second point is seemingly not possible for some people as well!

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u/illit1 Dec 08 '21

but it looks so good!

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u/Tronguy93 Dec 08 '21

Thanks to the American insurance healthcare system, my means are sadly more than groceries and rent, I have to pay $300 a month for one medication and $50 for the other. I also have workplace insurance already too

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u/mxzf Dec 08 '21

While true, there's also a non-trivial number of people who misclassify luxury goods as "needs" and go into unnecessary debt to keep up appearances.

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u/King_Fish Dec 08 '21

The definition of "needs" is the real basis of the discussion here. You could start at the low end with what do you "need" to not die vs what do you "need" to subjectively live a "comfortable" lifestyle and many other definitions/arguments.

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u/congenitallymissing Dec 08 '21 edited Dec 08 '21

this is the truth. there are certainly things that you may not "need" in order to stay alive, but that you certainly "need" in order to stay competitive to attain a "comfortable" lifestyle.. just like you said

one great example of this is the internet. you may not "need" the internet to stay physically alive. but the amount of difficulty in achieving "success" or a "comfortable" lifestyle certainly relies around access to it. i dont want to misspeak, because i dont remember the exact numbers or anything. but there was an interesting article maybe a year or so ago about homeless people trying to get out from under without internet access. there are certainly avenues for free internet use, but they may also cost them hours of extra work, background checks, interviews at work centers, etc to just get that access. whereas we can just plop down anytime we want and look at apartments, jobs, jobs in other cities, volunteer opportunities to boost the resume etc...there was a city considering offering free internet access throughout, and the article discussed all the pros and cons

edit: i think the city was in colorado.? maybe fort collins. not entirely sure

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u/Renyx Dec 08 '21

A lot of the tech help I did at a library was stuff that I'd call essential. Applying for jobs, working on immigration/citizenship, taxes, legal correspondence, work training, accessing medical information, schoolwork... Existing in the modern world really requires Internet access, especially for email. The amount of things you can't do without an email is kind of staggering.

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u/dankins777 Dec 08 '21

I know you’re probably referring to people who buy designer items they can’t really afford or take out loans for expensive cars, but this is the logic insurance companies use to tell people keeping their teeth in their mouth is an unnecessary, frivolous expense

edit: grammar

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u/trollfucker69 Dec 08 '21

“Yes, doctor, so should I get braces for my kid?”

“No, your insurance won’t cover them and it’s extremely expensive without insurance.”

“So I won’t get braces for my kid if it’s too expensive and it’s not life-threatening”

“Oh no, if he doesn’t get braces his teeth will grow in improperly, which will lead to chronic pain as an adult and can eventually become a lifelong issue or can even be deadly if not treated.”

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u/Superboy309 Dec 08 '21

Don't forget

"If you ever change to a different insurance company, they'll either charge you a lot more or wont cover those chronic conditions because they existed before you changed"

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u/csdspartans7 Dec 08 '21

On paper it’s best to give as little as possible and owe at the end of the year but in reality a lot of people aren’t going to be disciplined enough to save for the money they owe and a tax refund is a sort of forced savings mechanism that’s going to be better for some people.

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u/Balticataz Dec 08 '21

Letting the government have some extra money of mine for the year for the peace of mind knowing I won't owe come tax time is well worth it.

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u/Iced_Coffee_IV Dec 08 '21

Another thing a ton of people get wrong: a tax return is the set of forms you file. A tax refund is the money that you get if you overpaid during the year.

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u/[deleted] Dec 08 '21 edited Dec 09 '21

[deleted]

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u/ThePhysicistIsIn Dec 08 '21

Usually interest on overpaid tax is only if they miss the deadlines in paying you out

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u/Circleseven Dec 08 '21

Nah fam this is America.

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u/agasizzi Dec 08 '21

To be fair, you can adjust your deductions and reduce your monthly income taxes down to a very low level depending on your income. and for individuals at the bottom of the income ladder, the government is paying them with refundable tax credits.

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u/ToastNeo1 Dec 08 '21

I know, my point is there are tons of people who don't. And some that purposely withhold extra instead of just saving themselves and having the option of using it throughout the year.

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u/TheGreatButz Dec 08 '21

Well, psychology does play a role. I much prefer to get money back than having to pay, although from a purely economic point of view the opposite is better because you lose money due to interest, inflation, and other temporal discounting mechanisms (lost opportunities, etc.) if you get the money back after a year.

I'm kind of ashamed by my irrationality, though.

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u/loves2spoog3 Dec 08 '21

My taxes are deducted before I even get my cash, so I never have it to begin with. When I get tax refunds each year part of me thinks it's like found money or a gift, when in reality I earned the money lmao

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u/skinnah Dec 08 '21

Your W-4 can be adjusted so that you're not paying in an unnecessarily high amount in taxes only to get it back when you file your taxes.

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u/cuddlefucker Dec 08 '21

I've done this before and managed to get my refund under $1000 but I really don't want to get it any closer or end up having to pay at the end of the year.

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u/Suitable_Egg_882 Dec 08 '21

I tried that one year and ended up owing a couple thousand.. never fucking again.. I'll gladly lose a little to lost opportunity than have a 2 grand bill sprung on me because I fucked up.

I'm paying for peace of mind.. and it's worth it to me

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u/kirbbabble Dec 08 '21

Lol I prefer the big refund bc I’ll spend it better than I would if I was just getting a couple extra dollars on each check.

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u/Hessian_Rodriguez Dec 08 '21

Well it can be greater than you paid in. Child tax credit can get you money back even if you paid zero in. A single mom of 3 making less than $70k pays zero taxes. The the more she is under the $70k the more she gets back.

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u/HandsyBread Dec 08 '21

This one hurts me the most and what kills me is that people spend that money as if it was a gift and not just your money that you loaned to the government.

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u/gladl1 Dec 08 '21

Or the spend that money as if it was a form of saving they done throughout the year so they could buy themselves something.

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u/Kylerthegamer4 Dec 08 '21

That is what a lot of people use it for.

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u/LATORR1g Dec 08 '21

With no interest also… I take great pride in getting single digit returns. Means my accountant is on her shit lol

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u/ninjaroach Dec 08 '21

In some cases the (US) government will use tax refunds to pay out more to certain people than they've pay in. See: Earned Income Tax Credit.

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u/LazyResponsibility70 Dec 08 '21

This isn't ALWAYS true. The child tax credit (and others I'm guessing) can pay out more than what was withheld.

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u/CptnAlex Dec 08 '21

Also the earned income tax credit.

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u/badass_panda Dec 08 '21 Helpful

At least in the US, I can understand why so many people don't get how marginal tax brackets work:

  • It doesn't come up. A lot of workers have spent their whole lives in the 2nd tax bracket (median individual income is ~$37K, the bracket starts at $9K and ends at around $43k).
  • They don't notice it. Taxes come out of their paycheck before they receive it, and at the end of the year they get a refund; Turbotax (or whatever) does all the math for them.
  • It fits a narrative. Often, the people who repeat this trope don't need to genuinely believe it to want to say it. What they mean is, "I could be earning more if I wanted to earn more, but I don't because the government would only take all my earnings." If it wasn't this excuse, it'd be a different excuse.
  • They're conflating benefits with taxes. A 'benefits cliff' is when parts of the social safety net intended for low income earners have a hard eligibility cutoff. For example, a family of four earning less than $46k is likely eligible for subsidized housing (~$500 a month) and SNAP (food stamps, ~$650 a month). For these folks, getting a $5K raise that puts them over the threshold could cost them $14K.

That last one is the biggie -- it's not taxation that's causing the 'cliff', but there is a cliff for low income people (at least in the US), if they're receiving low income benefits. The wealthier someone is, the less likely it is that that cliff is what they're talking about, and the more likely it is that they're just ignorant, willfully or otherwise.

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u/CatNoirsRubberSuit Dec 08 '21

You're forgetting another:

People who work highly variable schedules will often have their withholdings change change significantly, since withholdings often assume that your current paycheck is your annual income.

This leads to statements like "all I know is weeks I work 20 hours I take home $200, and weeks I work 40 hours I take home $300. Doesn't seem fair to me." (the numbers are made up, but the idea holds).

This is because when they work 20 hours a week the payroll system taxes them based on an expected annual income of a part-time worker (with a lower effective tax rate).

However, when they work 40 hours a week the payroll system taxes them based on an expected annual income of a full-time worker (who has more of their income subject to tax, and a higher effective tax rate).

Yes, people are still getting a larger paycheck, but they feel like the more they work, the less they're actually getting paid for their time.

Now, they get this money back when tax refund time comes around - but they credit that money to whoever is in office, not their own hard work from earlier in the year.

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u/badass_panda Dec 08 '21

Great observation

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u/Duckbilling Dec 08 '21

Also,

I had co workers who would complain about their paycheck take home amounts, but they had retirement funded and matching. So while I understand they wanted to make more per paycheck, they never considered that they were getting paid tax deferred and matched by the company when comparing pay with competitors.

People only see what they want to see.

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u/Alabamahog Dec 08 '21

I really appreciate this addition. I consider myself to be highly financially literate (although perhaps the dunning-Krueger effect is at play here) and I did not know this.

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u/GeeSlim1 Dec 08 '21 edited Dec 08 '21

It’s fucking insane the number of people who have said to me they don’t want to earn over £40,000 because they will lose money….

Edit; Jesus Christ my inbox. The example is in £ as I am referring to UK tax payers. The fact that other in countries people lose their healthcare entitlement which costs them thousands of dollars is a completely separate matter

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u/thomascgalvin Dec 08 '21

Do government benefits drop off a cliff in the UK the way they do in America? Because while this graphic is true about the tax rate, if you're getting food stamps, rent assistance, and so on, going from $39k to $40k (or whatever) absolutely can result in you losing all of those benefits, and ending up with less money overall.

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u/Haliflet Dec 08 '21

There's a drop off of child benefit between £50k and £60k which can have this effect. That would be a medium level income in a lot of places.

You also lose your tax-free allowance between £100k and £125k, but if you're bringing in that much in a year then you're doing fine anyway, really.

I know less about how low income support measures work but I believe they're structured to avoid a drop-off.

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u/STORMFATHER062 Dec 08 '21

I'm on universal credit and for every pound you earn is like 60p or something that they take off (I don't know the exact figure). You gradually lose your benefits but you're still better off taking the pay rise. However I get so little on universal credit that any wage would annihilate all the benefits I get anyway. I'm starting a new job next week so I can finally start paying off my debt. Goodbye UC, you barely fed me.

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u/10Shillings Dec 08 '21

Congratulations on the new job! UC sounds like a bastard from everything I've read and heard.

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u/vishbar Dec 08 '21

Tax-free childcare and an additional 15 free childcare hours are lost at £100k as well. It’s a hard cliff, so you can actually reduce your takehome with a salary increase.

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u/emtag Dec 08 '21

you can actually reduce your takehome with a salary increase.

True, although realistically in that scenario you'd just take the increase and plough everything over 100k into your pension to allow you to keep the benefits.

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u/granitestatelad Dec 08 '21

Can you get much from the feds if you make 39K? You have to be brutally poor to access most programs

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u/DeathbyHappy Dec 08 '21

Likely depends on the median income in your area. $39k in the Midwest could cover the essentials for a small family, but $39k on the West coast is "split a pack of Ramen between the kids" level struggling.

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u/tryingwithmarkers Dec 08 '21

In Ohio if you make over 1k a month you can't get on Medicaid. I was denied that and food stamps bc i made $1,073 a month (full time student teaching, could hardly work)

Wisconsin it's similar but idk the specifics. In Wisconsin you get kicked off food stamps around 2k a month. Which sucks because the cheapest rent i could find available for a one bedroom was $900/month.

Edit: typo

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u/turmacar Dec 08 '21 edited Dec 08 '21

FWIW in the US at least the welfare cliff is real. It's closer to $30,000, but due to the way benefits just stop instead of being gradually reduced you end up having far less spending power if you earn just a small amount more.

Not the same as the tax myth, but could be a reason it's so persistent. (At least in the US)

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u/Suiken01 Dec 08 '21

the calculation in the pic applies to USA taxes too right?

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u/ronchalant Dec 08 '21

Yes. But there are a lot of means-tested benefits in the US as well.

There's a middle area where you make too much for certain/all benefits, but not so much that you're living on easy street from an income perspective.

Also, means testing typically does not take into account cost of living. So earners in one region might be alright with the current setup while another region would struggle mightily.

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u/Steve_78_OH Dec 08 '21

I've heard of people here in the US rejecting raises specifically because the extra $1/hour or whatever would force them to lose their SNAP benefit or something like that, so they wouldn't be able to afford food. Yeah, it's definitely a thing, and I'm SO glad I'm not in that position. And it's SO shitty that people have to turn down the opportunity to make a tiny amount more, because doing so would cause them serious financial harm.

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u/ronchalant Dec 08 '21

That's insane. It really should be a sliding scale. Not "at this level all benefits cease".

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u/BidenWontMoveLeft Dec 08 '21

It is a sliding scale but most of the benefits cease at a point where it keeps you in poverty. For ecample, you earn X amount in food stamps if you make 8k per year, Y amount if you earn 10k, Z amount if you earn 12500. Then 0 past that. It's ludicrous to think that if you're making 13k per year then you can suddenly afford everything but that's the US for you. Force labor, high taxes, no benefits

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u/eric2332 Dec 08 '21

The best policy is that everyone gets the benefits. (Otherwise known as a UBI) Then you raise marginal tax rates on the rich to pay for these extra benefits. No welfare cliffs, and no bureaucracy to figure out who is entitled to the benefit.

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u/Gaffi1 Dec 08 '21

Numbers are obviously different, but the concept applies, yes.

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u/Sausagehead_Sam Dec 08 '21

My foster father spent most of his life as a mortgage broker. I know that isn't a CPA or anything but he still should have had some financial literacy. The man absolutely insists that he made less money due to being in a higher tax bracket.

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u/GeeSlim1 Dec 08 '21

Think there’s a word for used on the finance forums which means you cannot take home less money as a result of a salary increase

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u/Sir_Bumcheeks Dec 08 '21 edited Dec 08 '21

I worked with a dude who never accepted raises after a while because he said it would "push him into the next tax bracket". I explained to him how it worked but he didn't really listen. I cringe thinking about if he only realized his mistake years down the line. Maybe he realized how it worked once the minimum wage went up (I hope).

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u/chew-tabacca-spit Dec 08 '21

My dad owns a business and doesn't understand this lol. At one point after us kids moved out, my mom was wanting to get a part-time job and he told her not to because it would "put them in the next tax bracket."

He's also the guy who was absolutely shocked when I didn't get 100% of my taxes back (as in social security, medicare/medicaid deductions, etc) after the first summer I worked for his company. He was under the impression that making under a certain dollar amount meant you paid absolutely no taxes, full stop.

These incidents are burned into my brain because they were the moments I first started thinking, "you know maybe I shouldn't get my political views from dad"

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u/DrunkenGolfer Dec 08 '21

“I don’t want to work overtime because I lose more in tax than what I earn”

Same people. You can’t fix stupid.

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u/fellowspecies Dec 08 '21 Silver

I still don’t understand how people do not understand this. It’s not that complicated and if you’re earning £49k and think that earning another £1k is going to bring your overall take home lower than current then I’d seriously question how you are where you are.

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u/01binary Dec 08 '21 edited Dec 09 '21

Many people don’t understand numbers, and they’re not prepared to try.

I try to teach people that calculating, say, 15% of a price is easy, but they ‘know’ it’s difficult, and they’re ‘no good at maths’, so they don’t try.

To be fair, most maths teachers I’ve known are shit at teaching basics. For some reason they seem to want to complicate simple calculations.

[edit:

Thanks for all the responses, there are too many for me to read, let alone respond to!

I want to clarify that I did not write ”most maths teachers are shit”. If you think that’s what I wrote, please have another look. I used to be a secondary school teacher, and worked with many wonderful teachers.

I taught ICT and Business Studies… having worked in or run IT businesses for the previous two decades. Naturally, I ensured that I followed the curriculum, but I also included skills such as being able to mentally calculate store discounts, understanding how to use credit cards, how to manage personal finances, and information about basic consumer rights. None of these were in the curriculum, but I don’t think I would have been a good teacher if my students had left school without me having tried to teach them these basic life skills.

I don’t even think I was a ‘great’ teacher; there were (and are) many better than me, but I do hope that I was at least ‘good’. ]

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u/ThePlanetBroke Dec 08 '21 edited Dec 08 '21 Silver Gold Helpful Wholesome Starry

Love 15%. Take 10% - i.e. shift the decimal place one spot to the left. Then take half of that. Add them together. And you have your 15%. Quick and easy to do, especially if you just need a ballpark figure.

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u/pM-me_your_Triggers Dec 08 '21

For people that hate Common Core or “new math” in the US, these are the exact sorts of things it teaches to make mental calculation faster. I was dogshit at mental arithmetic prior learning how to teach similar sorts of methods to children, and that’s from someone who can evaluate all sorts of calculus expressions mentally.

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u/BrainWav Dec 08 '21

I remember hearing "they changed math" and though it was dumb. Then, it got explained to me and I said "wait, that's basically how I already do mental math, why's everyone complaining?"

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u/IngsocDoublethink Dec 08 '21 edited Dec 08 '21

The way they "changed math" was by teaching you the thought process behind the math. It's not necessarily as straightforward as the rote learning people were doing, but leads you to having the little tricks to do mental math, and preps you to more easily grasp things like algebra and calc because what it's really teaching you is the mechanics of the operations.

For all the bitching people did about it, I'm pretty confident a larger portion of the kids who went through early education with it are going to be more confident "math people", because they'll be better able to understand how and why things are working while they memorize formulas and wrap their heads around variables. If you know how the tool works, it's easier to use.

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u/krantzer Dec 08 '21

As someone who's always been great with mental math, as soon as the Common Core debate started happening & I looked into what this "new math" entailed... I was happy that people were going to learn to do mental math like I could and that what I'd always done actually had a naming convention & method of application and wasn't just what I thought was by my own logic and a weird shortcut that existed only in my brain.

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u/NoBlackScorpion Dec 08 '21

I just spent several minutes typing a similar comment and then saw that you'd beat me to it. But yes, this is exactly what Common Core standards accomplish. Yes, in the short term, it makes simple calculations appear complex. That's because the goal is to convey actual mathematical understanding, not just memorization of a bunch of numerical relationships.

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u/hedgeson119 Dec 08 '21 edited Dec 08 '21 Silver Wholesome

Holy fuck thanks. I was one of a few people at work that could add fractions in my head, but bad with %, we didn't ever use that though.

Usually I'd gold comments like this, but am currently poor.

Edit: Usually I don't disable inbox replies, but too many people are saying the exact same thing.

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u/ttinchung111 Dec 08 '21 edited Dec 08 '21

Another way to do %s is that x% of y = y% of x, so if the other number is rounder it makes it easier.

For instance, something dumb like 1348% of 50 = 50% of 1348, so 674, easy enough math.

Learned that on Reddit a year ago.

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u/Omgninjas Dec 08 '21

I think you added an extra one there. Should be 674 not 1674. Otherwise good point lol.

For those not aware 1348% of 50 = 50x13.48= 674 =50% of 1348= 1348/2.

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u/ttinchung111 Dec 08 '21

Ah yes sorry I'm a dummy xd fixed the extra digit.

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u/dukec Dec 08 '21

It’s good in some situations, but knowing that 8% of 14 is the same as 14% of 8 is useless to me.

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u/ladyrift Dec 08 '21

If you are ballparking round the % to a more easy to do number. 15% of 8 is .8+.4 = 1.2 so 14% will be slightly less.

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u/espono Dec 08 '21

14% will be 1% less than 15%, so you subtract 0.08 for a total of 1.12

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u/masterelmo Dec 08 '21

I learned this trick and it saved my ass on percentages.

Basically 1% and 10% are both super easy to calculate and any other percentage is a permutation of those. It's kinda like coin math honestly... 18% is 1 ten, 1 five, and 3 ones.

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u/psionix Dec 08 '21

This is the way, just keep halving things into understandable numbers.

Humans work well with factors of 2 in the brain

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u/malthar76 Dec 08 '21

You lost me at decimal shift (j/k)

That’s why I never leave 15% gratuity. 20% is just easier to do. 10% is the simplest, but not fair except for counter service. Sometimes I guess at the midpoint if I’m feeling irked and get close doing to 15%.

Caveat- I have degrees in engineering and still cant be bothered with mental math most of the time.

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u/SwiftStriker00 Dec 08 '21

I just double tax(8%). If I'm lazy or drunk I just round up to make the numbers a bit easier

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u/saynay Dec 08 '21

I found this to be true of a lot of subjects. People just convince themselves that they can't know certain subjects, and their brain just turns off when presented with them. Happened to me in trying to learn a new language, even though I know a bit I still catch myself tuning it out on the assumption "I can't understand this".

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u/Original-Aerie8 Dec 08 '21

It's even worse. People just don't like being bad at something. If you never train, bc you are bad, you can not get better. All the "Math is hard", "I can't do this" is just them rationalizing.

With that said, I have actually met people who can not do math. Learning disabilities are a thing, even when people seem really normal otherwise.

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u/OutOfCharacterAnswer Dec 08 '21

People truly do think this in the United States. I know someone (we're not friends, but met through mutual friends), who literally refused a raise as they said their take home would decrease by being moved barely into the next tax bracket. I explained to them how a progressive tax bracket works, and they said "nope, that's not how it works". Well, whatever, I don't live in your household.

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u/EarthBounder Dec 08 '21

I've heard this dopey cliche for decades. People just aint bright.

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u/Helgafjell4Me Dec 08 '21

I've had to explain this countless times to hourly people at my company who complain they make less money if they work overtime or occasionally in regards to raises. Seems to be a pretty wide spread misconception.

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u/tristfall Dec 08 '21

So I think the way this appears to "happen" is because of shitty accounting software and hourly workers often varying in hours week to week.

Accounting software tries to calculate your yearly income, then your owed year tax, then divide that by pay periods, that's your withheld amount. But if the software sucks, it often takes too much or too little into account. So I've seen software do: "oh, you worked a lot of overtime this week... you made 4x a normal week... If you make that amount every week for the rest of the year, you'll have made this immensely high number of moneys! That means your yearly tax would be super high! and now I'll divide that into this paycheck and withhold."
Now, that should still be a way higher paycheck than others. Where the problem comes in is: next pay period "oh look, you earned way less than last week... But you can't fool me! I'm sure that insanely high number I calculated for your yearly earnings last week is still valid. I'm going to withhold a lot still" so you end up with one lower paycheck.
It usually averages out quickly, and better software wouldn't have made the first mistake, but I've definitely seen shit like this happen. You still should never have less money overall (as whatever amount down you are from the second week should have been more than made up for by the first), and even the worst software should balance it out within a month or so, but if you know just enough to calculate your effective tax withheld rate, and then freak out on either the large or following paycheck, you can come to the wrong conclusion for what seems like good reasons.

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u/BoxingRaptor Dec 08 '21

Lol, I had this same situation a couple of decades ago with a friend of mine. He also refused a raise for that reason. I explained to him how it works, and also drove home the point by saying that at one point, the highest tax rate was 94%, and did he really believe that if you had earned $1,000,000 during that time, you would only take home $60,000??

Luckily, he actually listened, and went back to accept the raise.

I've been saying for years that there should be mandatory personal finance classes in high schools in the US; these stories only reinforce that conviction.

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u/rmlx Dec 08 '21

Mandatory finance classes puts bargaining power and financial literacy at a young age in the hands of a young workforce. Can you guess who would hate that?

Educated youths that know the value of their labor? That’s a nightmare for wall street.

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u/GummyKibble Dec 08 '21

And as with other things, the textbooks would be approved by the Texas Dept. of Miseducation, and include things like:

  • Planning for a sensible 20% of your income to be spent on gasoline
  • The unaffordable costs of union dues
  • The benefits of trickle down economics

And so on.

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u/Phoenix0902 Dec 08 '21

They are brainwashed by the media. It is easier to push the narrative that increase tax rate for the top earners will affect them, thus pushing them to vote for any tax decrease for the rich.

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u/malthar76 Dec 08 '21

A whole bunch of rich people and mega corps are telling me through bought and paid for sources that more taxes are bad for me personally.

I trust them with my best interests.

/s

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u/DerisiveGibe Dec 08 '21

It's the same people who say things like "I don't work extra hours cause if I do my check is less"

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u/venomous_frost Dec 08 '21

That can happen when you lose other benefits (free doctor, foodstamps,...). Or people with a disability that can't work more than X hours, or they would be considered not disabled and lose your disability income.

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u/_BindersFullOfWomen_ Replace "binders" with "basements" Dec 08 '21 edited Dec 08 '21

that what's known as the medicare medicaid cliff, and it's a huge problem.

edit: I'm an idiot, got the two things mixed up. Medicaid is the one that you get when you're poor, medicare is the one you get when you're old.

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u/DIYThrowaway01 Dec 08 '21

Tremendous issue. My friend is a single mom raising 3 kids in her household, and she just got her degree. She applied to a new job that pays double what she's making now (which she is barely surviving on), but if she got paid more she would lose so many benefits that her family would literally be starving on the streets.

Shit's wild yo.

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u/Kelsier25 Dec 08 '21

I worked personal banking in a very high poverty area for 7 years. This is a HUGE problem that gets ignored. Most of my clients would turn down more hours and promotions because of the hit they would take in the short term. It would hold them back from developing a career that would allow them to break out of the cycle of poverty. I can't remember the exact number, but the monetary value of benefits was huge to where they would need to land a $40k+ job to break even. That shitty bank job was paying $30k a year and my take home was definitely less than most of my clients.

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u/maaaatttt_Damon Dec 08 '21

When I met my partner she was working for a refugee assistance non profit (still does). When she started there, it was through Ameri-corp. So she was technically a volunteer. Her hourly pay ended up being about $4.50 an hour (2012) and her job was to find work for these refugees. The refugees were pretty new arrivals, and most didn't speak a lick of English (not talking down, its just part of the story) most of the jobs were like packing peanuts, gardening at a major plant supplier and other labor jobs. Generally starting between minimum wage and $9 hour.

I remember saying to her, "so you have a bachelor's, and speak 2 languages, and your job is to take people that don't speak English and have no way to prove skills, and get them a job paying almost 2 times what yours does? Damn.

She still works there, but has risen through the ranks, doesn't make what I feel she's worth, but it's at least livable.

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u/nibbles200 Dec 08 '21 edited Dec 08 '21

Years ago a guy I know was given a promotion from a parts counter guy to the manager, big pay bump. He said he declined it because he did the math and it meant he would lose all his welfare benefits like food stamps, daycare assistance, medical assistance, heating assistance. I explained how the FT position had healthcare coverage, but he’s like, but then I’ll have to start paying a copay and deductible.

This same guy goes on FB and bashes liberals and welfare queens. I don’t hang out with him anymore.

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u/jonlucc Dec 08 '21

I’ve never understood why any program should have a cliff. They should all degrade gracefully, and the reason is so obvious, it pisses me off that it exists.

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u/_a_random_dude_ Dec 08 '21 edited Dec 08 '21

When something is obviously stupid and could easily be fixed there are only 2 explanations. You are misunderstanding the problem or someone is benefiting from it. In this case, my money is on the latter, you can keep people in poverty if you put a hard limit they can't cross while disguising it as charity so it doesn't look as evil, for example, the cliff makes sure there's always people forced into minimum wage.

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u/bout2cum Dec 08 '21

I would say it's more of people trying to sandbag the program to profit on getting rid of it than it is a big scheme to keep people on it

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u/tantalor Dec 08 '21

Here's a mnemonic:

Medicaid for those who are low paid

Medicare for those with grey hair

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u/Dugen Dec 08 '21

I don't understand how, in the age of computers, we haven't switched to a system where a bit of math makes sure this is never the case. Just adjust the rules so there are never cliffs, only ramps. Government is a useful tool when it is used correctly, but I feel like people have decided it's better to tear it down than fix its problems.

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u/Black_Moons Dec 08 '21

In some places they just claw back disability income, dollar per dollar, so someone has to work 2x as hard before they see a single dollar more income per month.

So they can work 1x as hard for 2x money, 2x as hard for 2x money, or 3x as hard for 3x money. Work 3 times as much for just 50% more pay...

Its almost as if the person who designed the plan, was either completely incompetent at basic game theory, or wanted to keep disabled people from trying to get full time jobs.

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u/gray_armada Dec 08 '21

I don't (usually) do extra hours because I value my time more than what they pay me.

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u/Qikslvr Dec 08 '21 Silver

This is always the right answer. Put a dollar value on your time and you'll start to see where you waste it.

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u/FLHCv2 Dec 08 '21

Wow I am wasting so much money on Reddit.

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u/JohnnyDarkside Dec 08 '21

I don't hear that as often, but it used to be a bigger complaint. People would claim they got a raise and now make less because the "higher tax bracket." I'll admit that in my 20's I didn't really understand tax code very well, but never understood what they were on about because I never saw that regardless of how large or small my raise was.

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u/jnkangel Dec 08 '21

Mind you - can actually end up being worse off in certain cases if you earn more, or feel zero benefit.

- Social programs might have earning ceilings

- in some countries debt seizure might only occur after you pass a ceiling.

These two aspects might mean you are do end up worse off (albeit not from taxation)

The truth is, it's less that people don't understand how taxes work, it's that the fact that income taxes structured in "Brackets" with each bracket getting separate taxation rates and being taxed from their bases isn't really discussed by people.

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u/Macluawn Dec 08 '21

Social programs might have earning ceilings

This is the big one. A 500$ raise doesnt mean much if that means your expenses go up by 1000$

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u/guywhoishere Dec 08 '21

It's why these programs should always just work by reducing a percentage of benefit as you make more money. If you get 500 a month in rent subsidy because you don't make enough and then get a $250/mth raise, you should now get a $350/mth subsidy, not nothing.

It should always be better to earn more money or it creates a disincentive to work.

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u/lamamaloca Dec 08 '21

Yup. When we were young and poor (with a couple little kids) we figured out my husband would need to make double in order to make any increase in income worth it, because we'd lose food stamps etc. Me going to work would push us too high up to get child care assistance. Luckily our families helped support us us while my husband went through sheet metal training and got a good manufacturing job that really was about double.

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u/frezik Dec 08 '21

"The government takes 40%" is a simple statement to make, and it seems that way if you just look at the brackets and don't check the details. Combine that with a group that has a vested political interest in making taxes sound higher than they are.

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u/Other_Peoples_Posts Dec 08 '21

I've worked at two different Big Four accounting firms in the US and I've run into people at both that are on the consulting side who I have seen get mad about getting a raise because "its gonna push them into a higher tax bracket so their take home pay will be less". Its mind blowing.

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u/jmr33090 Dec 08 '21

I had to explain this to a friend who told me they turned down a $5,000 bonus because it would push them into a higher tax bracket where the bonus would cause them to pay more than $5,000 in taxes.

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u/InternationalLimit40 Dec 08 '21

Do many people actually not understand this?

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u/Avium Dec 08 '21

Yes. This conversation comes up every March.

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u/gurg2k1 Dec 08 '21

For a second, I thought it was March already after reading your comment.

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u/Avium Dec 08 '21

Started to panic, did you? :-D

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u/danielisbored Dec 08 '21

I'm torn as to whether they don't understand, or are willfully ignorant of the idea, because it contradicts their political philosophy. I can say, that not one single time that I've tried to explain it to someone who pulls the "higher tax bracket will make me earn less money" bit, has ever actually agreed with my explanation (or whatever explanation I link, like this one). They just tell me that there are factors that I'm leaving out. . .

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u/l3rowncow Dec 08 '21

This is my mother in law. Says my FIL turned down a bonus because it would have resulted in less take home pay. I said that was really dumb because even if that bonus is taxed at 75% initially she would get the rest in her tax return. Even still that wouldn’t result in a lowered check because they would still get the initial 25%. Also they can structure their paycheck to not deduct any taxes at all.

The only way they could be correct was if it resulted in a loss of welfare but even that is only true in some specific situations and municipalities. Also this point is irrelevant because they had no welfare to lose.

She insisted I just didn’t understand taxes at all.

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u/GWJYonder Dec 08 '21

if it resulted in a loss of welfare but even that is only true in some specific situations and municipalities

This is actually not all that uncommon for people in poverty. Luckily at this point I believe that most individual programs do end gently, for example "every additional dollar you make benefits go down by 50 cents". The problem comes when you are a beneficiary of many of those programs. If you are getting wellfare, food support, and winter heating support, and every one of those is all sunsetting at 50%, then that still means that if you gain a dollar of wages you are losing $1.50 in support.

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u/burnedhous Dec 08 '21

or are willfully ignorant of the idea, because it contradicts their political philosophy.

It's mostly this. Because the moment you explain it, they STILL continue on with their political narrative and will repeat this same lie later.

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u/davsbrander Dec 08 '21

Personally, until a little while ago when it actually became an issue for me to look into, I was more … unknowingly ignorant. I never really looked into tax brackets, it didn’t affect me at my salary level. I just never really thought about it, if I was taught it in school I don’t remember it.

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u/Stingerbrg Dec 08 '21 Silver Wholesome

I've g

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u/Awasawa Dec 08 '21

Fuck man he died right there in the middle of that sentence. Government raised the taxes on his words and he was in debt to the IRS, they just took him out right then and there

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u/JonnyBhoy Dec 08 '21 Silver

Dude got taxed 40% of his comment.

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u/kantokiwi Dec 08 '21

Well, you see it's

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u/Sharrakor Dec 08 '21

You know the

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u/flamebroiledhodor Dec 08 '21

Yeesh, can you believe they

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u/[deleted] Dec 08 '21 edited Dec 15 '21

[deleted]

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u/CholetisCanon Dec 08 '21

Which business owners love.

"Oh yeah, no raise this year? Tax problems? Sure, we can pay you less for your work than we otherwise would have."

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u/malbaisee Dec 08 '21

This is in the states but yeah. They just hear the words and don't bother researching what it means.

Few years ago, had exactly this type of conversation with a coworker. Younger than me but I'll be honest and say alot brighter. It was annual review time, and he hoped for not as good of a raise bc it would raise his tax bracket.

He just couldn't wrap his head around how it actually worked because he had bought into the language game of $X salary in Y% tax bracket. Simple statement implying the same % across every thing. Its what his conservative family family had always told him and he had never filled out tax forms himself. Used online software.

He was gob smacked after I sent him the direct link from the IRS of how it worked. Started him down questioning some of his assumptions.

And I dont fault him. Life is busy AF. We have to take shortcuts in knowledge gathering. We trust some sources implicitly too. Everyone does this, we just have to be able to accept our sources can be fallible.

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u/Pandafy Dec 08 '21 edited Dec 08 '21

The thing is I don't get how people, especially smart people just don't go..."Wait, that doesn't make any sense" and then go research it sooner.

Like I know we've got some pretty stupid processes around us, but a system that theoretically takes an additional $10000 if you happen to make $100 more dollars doesn't make any sense and should warrant further investigation.

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u/GWJYonder Dec 08 '21

"This doesn't make sense" is a feature, not a bug. This typically seems to be part of a very anti-government philosophy. It is part of a circular chain of logic that goes in part:

"That doesn't make any sense."

"Yeah I know, isn't the government stupid?"

"No, I mean that it doesn't make any sense."

"I know, government sure is stupid. Also taxation is theft."

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u/Shufflepants Dec 08 '21

Considering many people's distrust in government and their belief that the government is wholly incompetent at everything it does, to them, the government having a policy that makes no logical sense makes perfect sense to them.

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u/bromz Dec 08 '21

Going to save this one. Had this discussion countless times before. People just don't understand... "No, you will not make less by getting that 100€/$ gross extra!"

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u/nopesoapradio Dec 08 '21

I generally agree with you and most of the time people are incorrect in thinking that they will “make less, by making more”. However, in some circumstances, making a little more does put them in a category that disqualifies them for some government assistance. So by making $100 per month more, but losing out of food stamps or something like that, then they would be correct in stating that they would be worse off taking the raise.

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u/jpgonzo24 Dec 08 '21

As a tax professional, I like this. I actually draw pictures for many clients.

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u/bankrobba Dec 08 '21

"Now here is a drawing of you in jail, because you haven't paid taxes in five years."

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u/jpgonzo24 Dec 08 '21

Thank you. I will be adding this to my artwork.

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u/AllOrNothing4me Dec 08 '21

It's surprisingly hard to convince people this is the way taxes work in the US.

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u/bloatedplutocrat Dec 08 '21

It's suprisingly hard because a certain group has worked suprisingly hard to keep the population uneducated to make them easier to take advantage of. Karl Rove is a terrible person but goddamn that guy is amazing at his job.

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u/Spartan2470 Dec 08 '21 Helpful

Here is a higher quality version of this image. Here is the source. Per there:

@MonaChalabi

This is how marginal taxes work. Under Labour's plan, rather than paying £27.5k in tax on an income of £100k, people would pay £30k. Calm down. It's really not a dramatic change. Sources: HMRC, the Labour Party

12:12 PM · Nov 23, 2019

She adds:

It would actually be even less if they introduced the new hike at £80k (which is what they're planning). That would mean that taxes only increase from £27.5k to £28.5k!

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u/zorthos1 Dec 08 '21

This diagram also misses out national insurance which is another 2-12% and most people also pay an additional 9% towards their student loans.

I'd recommend anyone in the UK who isn't sure how this works to just put all their numbers into listentotaxman.com

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u/AcaiPalm Dec 08 '21

This, NI is the silent feeder

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u/EatenAliveByWolves Dec 08 '21

Why can't they just teach what a tax bracket is in school so people don't need to find this out from strangers on Reddit lol. It takes like 5 minutes to learn.

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u/Awesomebox5000 Dec 08 '21 Gold

They do, people don't pay attention. Then when it becomes relevant in adult life those same people ask "Why don't they teach this in school?!"

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u/numbedvoices Dec 08 '21

100% this. I had this class and i actually remember most of it, but most 16 year olds do not care at that age and brush it off.

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u/Johnpecan Dec 08 '21 edited Dec 08 '21

At least in the US, a " basic finances" class would go a long way and we have nothing like this currently. Basic taxes, how credit cards work etc. Kind of mind boggling really. Credit cards companies would probably spend millions to stop it.

Edit 1: while there is some truth to the "most people wouldn't pay attention if it was taught in high school", you could make the same argument about literally anything in high school. Even if 10% of students retained 10% of the material, it would still be worth it.

Edit 2: apparently many schools in the US do this now, that's great. Things have changed.

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u/NateTheGreat148 Dec 08 '21

I’m currently sitting in a high school economics class that also teaches basic finances, including the information in this post. A lot of kids don’t pay attention, they’ll all forget it in a week.

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u/The_RTV Dec 08 '21

That's always been my argument. Most will study to get a passing grade and then forget.

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u/Zealousideal_File318 Dec 08 '21

My school actually required it, and a lot of the curriculum was exposing credit card companies and FICO scores. Public school btw.

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u/Johnpecan Dec 08 '21

What country/state?

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u/[deleted] Dec 08 '21 edited 29d ago

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u/Sillyboosters Dec 08 '21

Not sure where you grew up but “economics” is a class that covers all of this and is a requirement to pass high school at least in Florida

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u/MotionTwelveBeeSix Dec 08 '21

Most schools do have this, students are just really freaking dumb and have zero actual interest. Why would a kid care about tax brackets (and how would they even truly understand taxation and income generally) without any personal context?

Either way, it’s incredibly basic and we should trust adults to be able to figure it out, not blame the education system for their imbecility.

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u/PouffyMoth Dec 08 '21

If it takes a few minutes to learn, then it doesn’t really seem like something that needs to be taught.

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u/SeveralCryptos Dec 08 '21

I'll never forget the guy I worked with who had given up thousands of hours of overtime in his career so he could avoid being in a higher tax bracket and pay more in taxes. I calmly explained marginal tax rates to him (as in the pic) and he didn't believe me. He was in complete denial that he had given up thousands of dollars of income due to his mistaken understanding of taxation.

He honestly thought that if he made too much money he would end up paying more in taxes resulting in net loss of money overall. He refused to believe he was wrong.

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u/[deleted] Dec 08 '21 edited Dec 15 '21

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u/peas_and_love Dec 08 '21

Don't forget this is just income tax - most people pay more taxes than illustrated here due to sales tax/VAT and property tax. So you get taxed when you earn your money and taxed again when you spend it, yay.

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u/ProfessorFunky Dec 08 '21

Would be interesting to also add in “National Insurance” into that graphic. It’s another tax in all but name and does stick quite a chunk on top.

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u/Latvia Dec 08 '21

The number of times I hear full on adults say “I don’t want to earn too much more because it will put me in the next tax bracket”… god. I teach my high school students tax brackets because it’s so easy to understand and so dumb not to.

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u/MockStarket Dec 08 '21

My co-worker turned down a bonus a few years ago because it put him into the next tax bracket. I tried to explain the facts regarding tax brackets, but he wouldn't hear it. I like to think all our bonuses were slightly larger that year because of him.

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u/wiffleplop Dec 08 '21 edited Dec 08 '21

You missed National Insurance, which covers middle band earnings, and screws up your graph completely. It also means that the very well-paid pay less tax than your example, because of the limit to MBE. I’m out of touch with the numbers, but have a look and you’ll see.

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u/bobbydebobbob Dec 08 '21

We get a really pretty graph then. Roughly:

0 - 10, 0%

10 - 12, 12%

12 - 50, 32%

50 - 100, 42%

100 - 124, 62%

124 - 150, 42%

150+, 47%

Bit of a rollercoaster

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u/RealPleh Dec 08 '21

How did I never know NI was limited to MBE... that seems like a really important bit of information

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u/wiffleplop Dec 08 '21 edited Dec 08 '21

It is if you’re rich, but it doesn’t really apply to us proles very often unless we hit the big time. If you add them all together, a guy on £100k pays more tax proportionally than someone on £500k. When you add the fact that the majority of workers spend most of what they earn, thereby paying a further 20% VAT, the taxation of the land is skewed toward the rich.

Also, don’t forget the Employers contribution to your NI, which is essentially pay that you never see. That pretty much doubles your total NI to the mid 20%, again skewing the tax even more. People on huge salaries tend to find ways to avoid/evade taxation too, which is a whole ‘nuther truck load of loopholes.

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u/jinxsimpson Dec 08 '21

You also lose your tax free allowance past 100k, screwing up the concept of permanently keeping your brackets.

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u/omister2000 Dec 08 '21

Ohh never knew this damn I got some reexplaining to do in this case

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u/Gioforce Dec 08 '21

27.5k still feels like a ridiculous amount on 100k income.

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