March 26, 2025
REWIND: How Your Income Actually Gets Taxed
In this episode, Brandon and Jess break down the mechanics of tax brackets and discuss how the progressive tax system is widely misunderstood, often leading to make costly financial mistakes. If you've ever worried about taking a raise because it’s going to push you into a "higher tax bracket" or assumed your entire income gets taxed at your highest rate, then this conversation will transform your understanding of how taxation actually works.
Whether you're early in your career or an established professional, understanding these tax fundamentals will change how you view your paycheck and financial opportunities.
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Chapters
00:00 - Understanding Tax Brackets for W2 Income
11:21 - Join the Sugar Daddy Community
Transcript
WEBVTT
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Well, the one thing that I would say is the real big factor on people understanding their taxes is, as you said before.
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Let's just say, if someone makes $50,000, okay, and it's a single person.
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Most people think that if they make $50,000, that say you're in the 22% tax bracket for federal taxes.
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They think that the entire $50,000 is taxed at 22%.
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Is it not?
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It is not.
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Welcome to the Sugar Daddy Podcast.
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I'm Jessica.
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And I'm Brandon.
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And we're the Norwoods, a married millennial couple here to help you build wealth so you can live the life you've always dreamed of.
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Brandon is an award-winning licensed financial planner with over 10 years of experience and millions of dollars managed for his clients all over the US.
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Don't worry, we leave all the intimidating finance mumbo jumbo at the door Stick with us as we demystify the realm of dollars.
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So it all makes sense.
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While giving you a glimpse into our relationship with money and each other, we are so glad you're here.
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Let's get started.
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Hey babe, what are we talking about today?
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Today we are talking about how your income is taxed, because the reality is and I think most people think that their income is taxed in one lump sum.
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What?
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do you think?
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No, I would definitely agree.
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I would say when I ask people and I ask this question with everyone that I work with do you understand how you are taxed on your income?
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And majority of the time is like I kind of do and I'm like I say this is a safe space, there's no dumb questions.
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This is an area where, if you don't understand, it's perfectly fine to say that you don't so that you can learn.
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And they're like, in all honesty, I don't necessarily understand, and I don't think that's the minority people, I think it's the majority of people do not understand how our tax system works and how that correlates to how they're taxed on their income.
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For the sake of making this conversation easy, we're only talking about W-2 income.
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Okay, so how does it work?
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All right.
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So, first and foremost, you need to understand that our tax system is a progressive tax system.
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What that means is is that as you make more money, certain dollars are taxed at a higher percentage.
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So the more money you make, technically, the more taxes, the higher you are taxed on.
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Okay, progressive tax system yes, got it.
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What else?
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Well, the one thing that I would say is the real big factor on people understanding their taxes is, as you said before.
00:02:45.451 --> 00:02:50.430
Let's just say, if someone makes $50,000, okay, and it's a single person.
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Most people think that if they make $50,000, that say you're in the 22% tax bracket for federal taxes.
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They think that the entire $50,000 is taxed at 22%.
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Is it not?
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It is not.
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Okay, so what does that mean?
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So, as a single person for 2023, if your gross income and the money that you are being paid prior to taxes is $50,000, the first $0 to $11,000 is taxed at 10% $0 to $11,000 is taxed at 10%.
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Yes, okay, now any dollar to $11,000 is taxed at 10%.
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Yes, okay.
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Now any dollar over $11,000, so at $11,001 all the way up to $44,725, you are taxed 12%.
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Okay, okay.
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So we're like going in a tiered system.
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Progressive.
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Progressive Got it.
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All right Now any dollar that you make above $44,725,.
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You are now taxed at 22%.
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Okay is that most, like I said before, most people will think that the entire $50,000 was taxed at 22%, when in reality, only about a little over $5,000 was taxed at 22%.
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Okay, so that's an ARV benefit then 100%.
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It's a.
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Mathematically it's a huge difference.
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So when people are like, oh, I'm getting a raise but it's going to push me into the next tax bracket, I should ask for different benefits because I don't want to be in that next tax bracket.
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Really, that tells us two things.
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One, they don't understand how their money's being taxed.
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And two, you should always take the raise.
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Yeah, I've heard people say this numerous times, so, like as I, using the tax brackets before you know.
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Let's just say, as a single person, you were making $44,000.
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All right, so it would put you in the highest tax bracket of your money being taxed as 12%.
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Let's just say you got a raise for $2,000.
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So that made you at 46,000.
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Some people think now that their entire paycheck is going to be taxed at 22% and it's all over, just an additional $2,000 that was added to their income, and that's not correct at all.
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Always take the raise.
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Always take the raise.
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Even if it pushes you into the next tax bracket.
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Only that small percentage that is above and to the next tax bracket is taxed at the higher percentage.
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Okay, so what about the people making six figures?
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Let's say you're making $110,000.
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Can you talk to us about what that looks like on the tax scale, the progressive tax scale?
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Yeah, so as an individual, you know, as a single person, it's still the same kind of the same principles we already talked about.
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So the first $0 to $11,000 is taxed at 10%, the next $11,000 to $44,725 is taxed at 12%, and then the next $44,726, all the way up to $95,375, is taxed at 22%.
00:05:54.769 --> 00:05:55.050
Okay.
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Now the additional amount is taxed at 24% and that tax bracket goes from $95,376,000 to $182,100.
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Okay, so $182,100 is that next level of that tax bracket?
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Now here's where you kind of hear people saying that taxes are quote, unquote.
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Maybe semi-unfair is that if you see there are, you know, the tax brackets that we just went over.
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The margin of the tax bracket is not necessarily large.
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However, when you jump up to the highest federal tax bracket, which is 37%, it's anyone who makes $578,126 or more.
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Or more.
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So that's like an endless amount of money.
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Exactly.
00:06:46.951 --> 00:06:48.473
Okay, that's really interesting so what is it?
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578 126 as a single individual is a 37 tax bracket.
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That amount and higher so then, if I'm making 4.2 million dollars, I'm still in that tax bracket, correct Compared to somebody who's making the 530, 578,000.
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Correct However very large but here's the thing, and you know, like I said, I don't want to get too, you know, into the weeds, since we're mainly talking about W2 income.
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But majority of times, once you start to make that amount of money, normally you're not just a W2 employee.
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And you're yeah, okay, let's not.
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And those can be taxed in different manners.
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Okay.
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But for the sake of the conversation, we want to talk about W-2 employees.
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You know, most people that are working for someone else as a full-time employee are.
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Okay, so a progressive tax system your entire paycheck is not taxed at the same amount.
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There are different tiers, if you will, of your paycheck being taxed at various amounts, and you should always take the raise paid and how much you are paid.
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If I understand, that could be a little bit more difficult if you know you're self-employed on your own business, stuff of that nature, because the amount that you're paid on a monthly basis fluctuates.
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But if you are a W-2 employee and you do not know how much you are making either each pay period or each month, that's a problem because it should be the same amount you know, outside of bonuses and commission and stuff like that, your base pay.
00:08:20.627 --> 00:08:27.189
You should 100% know and understand and that is one of the first steps in financial planning how much money do you have coming in?
00:08:27.846 --> 00:08:34.073
But you've even said that you've asked people and your clients how much do you make?
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And a lot of times people can't answer that.
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Yeah.
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So you're going to work 40 plus hours a week, likely for somebody else.
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If you're not an entrepreneur and you don't know what you're working for, that's a problem.
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It's also a red flag, because that already tells me that you're not organized.
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You're not paying attention If you don't know how much money you make, when I would say that so much of this world revolves around money and how much you make and what you're able to do, and you can't answer that simple question.
00:09:02.493 --> 00:09:07.976
I'm pretty certain that there's other things that aren't in order and definitely need some work and focus.
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And it's not a bad thing.
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I'm not here to shame anybody, but be real about who you are as a person and understand where you need to have some improvements.
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We're not talking about all that today.
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Today we're just talking about the tax brackets and understanding that your income is taxed at multiple levels, in multiple In a progressive-.
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In a progressive way, and you should always take the raise.
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I'm going to just stop there.
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I'm just going to add one extra thing Of course you are With knowing your income as well, always take the raise.
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I'm going to just stop there.
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I'm just going to add one extra thing With knowing your income as well, you also need to understand how your income affects your eligibility for other things.
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Mainly, you always hear people talking about a Roth IRA.
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There are income limitations to contributing in the normal manner to a Roth IRA.
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Now, there are alternative ways to utilize a Roth IRA.
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If you are above the income levels, if you have already reached above the maximum level of income to participate in the normal way, there are alternative ways to do that.
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But you need to know this because if you make more than you, if you have a higher income than what's allowed for the normal way to contribute to a Roth IRA, and you do contribute to Roth IRA, you're going to be penalized.
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Okay and I've been saying that because I always see on social media Roth IRA, roth IRA, roth IRA, great.
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But you did also make sure that you were eligible to use it in the normal fashion.
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Because I don't look good in orange.
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You're not going to go to jail.
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You're just going to go to jail.
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You're just going to have a financial penalty.
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Well, I don't want that either.
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Exactly.
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Why throw away money if you don't have to?
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Okay, we'll save that for another episode.
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But at the end of the day, make sure we understand taxes.
00:10:49.293 --> 00:10:50.725
You see how he always wants to weave everything together.
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Everything rolls into the other parts, which, yes, is why financial planning is so important, but I just wanted to talk about tax brackets today and he just won't.
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Let me be great, y'all, I'm done.
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Okay, hopefully you learned something.
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Share this episode with a friend, because most people don't know this information.
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Talk to you soon, don't forget.
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Benjamin Franklin said an investment in knowledge pays the best interest.
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You just got paid Until next time.
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Thanks for listening to today's episode.
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We are so glad to have you as part of our sugar daddy community.
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If you learned something today, please remember to subscribe, rate, review and share this episode with your friends, family and extended network.
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Don't forget to connect with us on social media at the sugar daddy podcast.
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You can also email us your questions you want us to answer for our past the sugar segments at the sugar daddy podcast at gmailcom, or leave usa voicemail through our Instagram.
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Our content is intended to be used, and must be used, for informational purposes only.
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It is very important to do your own analysis before making any investment based upon your own personal circumstances.
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You should take independent financial advice from a licensed professional in connection with, or independently research and verify any information you find in our podcast and wish to rely upon whether.
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00:11:54.518 --> 00:12:00.312
