What this tool does
The Salary Raise Impact Calculator shows you the real-world value of a pay raise after accounting for federal taxes, state taxes, FICA (Social Security and Medicare), local taxes, inflation, and retirement contributions. A 5% raise does not mean 5% more money in your pocket. Depending on your tax situation, the actual take-home increase can be 40-60% of the gross raise amount, and once inflation is factored in, the purchasing power gain may be even smaller.
This calculator takes your current annual salary and a proposed raise percentage, then applies the tax rates you provide to compute the net raise. It breaks the result down by pay period (monthly, weekly, and daily) so you can see exactly how much more you will receive in each paycheck. It also generates comparison scenarios for 3%, 5%, and 10% raises so you can quickly evaluate different negotiation outcomes.
The tool displays a pie chart showing where your raise money actually goes (taxes, inflation erosion, and real gain) and a bar chart comparing the monthly take-home increase across different raise percentages. A comparison card shows your current salary versus your new salary with both gross and net differences.
Unlike calculators that use hardcoded federal tax brackets, this tool asks you to enter your own effective tax rates. This approach is more accurate for individual situations because your actual tax burden depends on filing status, deductions, credits, and other factors that vary widely between taxpayers.
How it calculates
The calculator follows these steps:
1. Gross Raise = Current Salary multiplied by Raise Percentage. For example, a 5% raise on a \$75,000 salary produces a \$3,750 gross raise.
2. Effective Tax Rate = Federal Rate + State Rate + Local Rate + FICA Rate. These are combined into a single marginal tax rate applied to the raise. For someone in the 22% federal bracket with 5% state tax, 0% local tax, and 7.65% FICA, the combined rate is 34.65%.
3. Net Raise After Taxes = Gross Raise multiplied by (1 minus Effective Tax Rate). Using the example above: \$3,750 times (1 minus 0.3465) equals \$2,450.63.
4. Retirement Contribution Adjustment: If you contribute a percentage of salary to a retirement plan, that percentage of the gross raise is subtracted from your net raise since it does not appear in your paycheck.
5. Inflation Adjustment: The calculator applies the inflation rate to your net raise to determine the real purchasing power gain. Net Raise After Inflation equals Net Raise multiplied by (1 minus Inflation Rate). With 3% inflation: \$2,450.63 times 0.97 equals \$2,377.11.
6. Pay Period Breakdown: Monthly increase equals net raise divided by 12. Weekly increase equals net raise divided by 52. Daily increase equals net raise divided by 260 working days.
7. Comparison Scenarios: The same calculation is repeated for 3%, 5%, and 10% raise percentages using the same tax rates, giving you side-by-side comparisons.
8. Pie Chart Allocation: The gross raise is split into three buckets for visualization purposes. Taxes (the amount withheld), Inflation Erosion (the purchasing power lost to inflation on the net raise), and Real Gain (what remains as actual increased purchasing power).
Who should use this
1. Employees preparing for salary negotiations who need to understand what different raise percentages translate to in actual take-home pay, so they can set informed targets. 2. Job seekers comparing offers across states with different tax rates. A \$90,000 offer in a state with 10% income tax is not equivalent to a \$90,000 offer in a state with no income tax, and this tool quantifies the difference. 3. Workers who received a raise and want to verify whether it actually outpaces inflation or merely keeps them at the same purchasing power. 4. Financial planners helping clients evaluate compensation packages and understand how tax rates affect the real value of salary increases. 5. People considering whether to negotiate for a higher raise or accept other benefits. Seeing that a 3% raise yields only \$120 per month after taxes might make a case for negotiating additional vacation time or a signing bonus instead. 6. Anyone budgeting around a raise who needs precise monthly or weekly numbers to update their spending and savings plans.
Worked examples
Example 1: A software developer earning \$75,000 receives a 5% raise. They are in the 22% federal bracket, pay 5% state tax, no local tax, and standard 7.65% FICA. Inflation is 3%.
Step-by-step calculation: - Gross raise: \$75,000 times 5% equals \$3,750 - Combined tax rate: 22% plus 5% plus 0% plus 7.65% equals 34.65% - Net raise after taxes: \$3,750 times (1 minus 0.3465) equals \$2,450.63 - Inflation erosion: \$2,450.63 times 3% equals \$73.52 - Real gain after inflation: \$2,450.63 minus \$73.52 equals \$2,377.11 - Monthly take-home increase: \$2,450.63 divided by 12 equals \$204.22 - Weekly take-home increase: \$2,450.63 divided by 52 equals \$47.13
The developer's 5% raise translates to roughly \$204 more per month in actual take-home pay and a 3.17% real increase in purchasing power.
Example 2: A marketing manager earning \$120,000 gets a 3% cost-of-living adjustment. They are in the 24% federal bracket, pay 9% state tax (California), no local tax, and 7.65% FICA. Inflation is running at 4%.
- Gross raise: \$120,000 times 3% equals \$3,600 - Combined tax rate: 24% plus 9% plus 0% plus 7.65% equals 40.65% - Net raise after taxes: \$3,600 times (1 minus 0.4065) equals \$2,136.60 - Inflation erosion: \$2,136.60 times 4% equals \$85.46 - Real gain: \$2,136.60 minus \$85.46 equals \$2,051.14 - Monthly increase: \$2,136.60 divided by 12 equals \$178.05
Despite a 3% raise, the manager only gains \$178 per month after California's high tax rate, and after 4% inflation, the real purchasing power gain is just 1.71%. This barely keeps pace with rising costs.
Limitations
1. The calculator uses flat effective tax rates you enter rather than computing progressive bracket calculations. This means it does not account for the portion of your raise that might span two different federal brackets. For most raises (under 20% of salary), the marginal bracket approach is accurate, but very large raises could cross bracket boundaries.
2. FICA calculations are simplified. Social Security tax (6.2%) stops applying at \$168,600 in earnings (2024 cap). If your current salary is near or above this threshold, the actual FICA rate on your raise may be lower than 7.65%. The calculator does not automatically adjust for this.
3. The tool does not account for the standard deduction or itemized deductions. Your effective federal tax rate after deductions may be lower than your marginal bracket rate. Enter the rate that best reflects what you actually pay on marginal income.
4. State taxes are entered as a flat rate, but many states have progressive brackets. The rate you enter should reflect the marginal state rate on additional income, not your overall effective state rate.
5. Pre-tax benefits like 401(k) matching, HSA employer contributions, and other non-salary compensation are not modeled. The retirement contribution field only handles your own contributions.
6. The inflation adjustment uses a single annual rate applied uniformly. Personal inflation (your actual cost-of-living increase) may differ significantly from the headline CPI number depending on your spending patterns, housing situation, and location.
FAQs
Q: What federal tax rate should I enter? A: Enter your marginal federal tax rate, which is the bracket your income falls into. Common brackets for 2024 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If you earn between \$47,150 and \$100,525 as a single filer, your marginal rate is 22%. You can find this on your tax return or by checking IRS published brackets.
Q: Why does my 5% raise only increase my paycheck by about 3%? A: Because every dollar of your raise is subject to federal income tax, state income tax, and FICA (Social Security and Medicare). A typical combined marginal rate of 30-40% means you keep 60-70% of each raise dollar. Then inflation further reduces the real purchasing power of what remains.
Q: My state has no income tax. What should I enter? A: Enter 0% for the state tax rate. Alaska, Florida, Nevada, New Hampshire (dividends and interest only), South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax on wages.
Q: Should I include my employer's FICA match in the rate? A: No. The default 7.65% represents the employee portion only (6.2% Social Security plus 1.45% Medicare). Your employer pays a matching 7.65% but that does not come out of your paycheck. If you are self-employed, you pay both halves and should enter 15.3%.
Q: What inflation rate should I use? A: The default 3% represents a rough long-term US average. For current planning, check the latest CPI data from the Bureau of Labor Statistics. If your rent, groceries, or other major expenses are rising faster than the national average, consider using a higher personal inflation rate.
Q: Can I use this for an hourly raise? A: Yes. Convert your hourly rate to an annual salary first. Multiply your hourly rate by hours per week, then by 52 weeks. Enter that as your current salary. Then enter the raise percentage you expect.
Q: Why is the real raise percentage so much lower than my nominal raise? A: The real raise percentage accounts for both taxes and inflation. A 5% nominal raise with a 35% total tax rate leaves you with a 3.25% net raise. If inflation is 3%, your real gain is only about 0.25% in purchasing power. This is why many workers feel their raises barely make a difference, even when they sound generous on paper.
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