Why didn’t my net salary increase with my salary increase?

When you receive a raise or a promotion, you are typically granted an increase in your annual salary or an hourly wage increase. Regardless of the method, the number may seem impressive on paper. On your way home, you might start crafting a detailed plan on what to do with the extra money or how you want to spend your new, bigger paycheck.

However, when the first new paycheck arrives, you may be disappointed. The large amount you expected doesn’t show up at all; instead, the net raise is much less than you thought. Below, we explain how to understand your salary, figure out where your earnings go, and how you can improve your net pay.

Where Did Your Raise Go?

To understand how an increase in gross salary or hourly wage will impact the money you actually take home, you need to understand how taxes and other deductions are calculated.

Taxes

Most likely, the largest single deduction from your salary is taxes – both federal and state – and you may find that almost all of your salary increase is taken away by these taxes.

Retirement

Your contributions to a retirement account may reduce the percentage of the raise you will actually receive. This means that as your salary increases, your retirement contributions will also go up.

Healthcare

Healthcare costs are another factor that can affect your salary increase. Taxes and deductions related to healthcare may also be calculated as a percentage of your gross pay.

Other Benefits

In addition to the factors mentioned above, there may be other deductions taken from your paycheck. These deductions can include stock purchase plans, relocation programs, or life insurance. If the cost of these deductions is calculated as a percentage of your total income, you will see that your contributions increase as your salary goes up.

Check Your Paychecks

If you believe your net pay after the raise is incorrect, you can check your paychecks – they should outline all the taxes and deductions that apply to your situation.

First, look at your paychecks before the raise, preferably the last paycheck before the increase.

Then, find the first paycheck after the raise where the new salary has taken effect for the entire pay period.

Next, follow these steps:

1. Make sure you received the raise you were supposed to: calculate your gross salary from the current paychecks and multiply it by the number of paychecks you receive in a year. The result should be your new annual salary. If it’s not, check back with the Human Resources department or payroll to ensure the raise was applied properly.
2. Compare each line item on the paycheck before the raise with the paycheck after the raise: to do this, prepare a list starting from gross salary and ending with net pay. For example, if the previous gross salary was $2000 and it is now $2500, with a healthcare tax rate of 1.45%, you would be paying $36.25 in each paycheck now compared to $29 with the old salary. Compare net pay amounts before and after the raise: if you add up all the changes (excluding the change in gross salary), you should be able to see the difference between your pay before and after the raise.

If you don’t believe you received the raise you were supposed to, first contact the Human Resources department or payroll. Some companies may use odd abbreviations for deductions or simply produce confusing paychecks. They will be able to assist you in understanding your paycheck.

If you received the raise you were expecting, and you’re not satisfied with your net pay, consider adjusting your contributions to retirement or other optional programs. You can also update the taxes deducted from your salary.

Questions

The Rumor

How to Calculate Your New Salary After a Raise?

If the raise in salary is a fixed amount, you can calculate the new base salary by adding that amount to the previous salary. If the raise is a percentage, multiply it by the previous salary, then add it to the previous salary. Once you know the new salary, divide it by the time period you receive it. If it’s an annual salary, divide it by 52 weeks to determine the total weekly salary (this is what you will earn before taxes and deductions).

Why Do You Pay More in Taxes After the Raise?

When you receive a raise, the additional amount leads to an increase in the tax bill due to marginal tax rates. For example, if you earn an annual salary of $41,000 and the raise increases your salary to $50,000, you will now have to pay more in taxes because the top of the new salary falls into a different tax bracket than the original salary (22% vs. 24%).

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Source: https://www.thebalancemoney.com/what-happened-to-my-raise-2386383