This question may seem like a no-brainer. Of course, a boost in income helps. More money means more opportunities, more security, and more happiness — right?
Many people don’t fully consider the potential “side effects” of accepting a raise; they’re not obvious, and they’re certainly not discussed in salary review meetings. So, before you shake on it and sign the paperwork, pause to consider the often overlooked downfalls of a higher income to decide if the extra cash is worth it.
You may be in a higher tax bracket.
This consideration is relatively straightforward, but it’s all too often overlooked. Quite simply, pulling in a higher gross income can push you into a higher tax bracket, increasing your federal income tax rate. This can affect the amount of take-home pay you see on your weekly pay stubs — but not by as much as most people think.
The important thing to understand is that if your raise bumps you up to the next tax bracket, the accompanying higher rate of taxation only applies to the portion of your income that exceeds the high-end limit of the previous tax bracket. This is called a “marginal tax rate system,” and can get a little confusing.
If you’re still lost, read more about how tax brackets work, and check with a professional preparer at tax time.
[Related: Bonus or Salary Increase: Which Type of Raise Is Best For You?]
Your employment status may change.
Does your raise change your status from a freelancer or independent contractor to a full-time employee? The most important factor for contractors and freelancers to consider is that they’ll no longer be eligible for many of the work expense deductions that can be helpful, come tax time.
Deductions include office supplies and equipment, health insurance premiums, fees for internet and phone, and even more — here’s a longer list of potential deductions. Full-time workers most often have these expenses covered by their employer, so you can’t deduct come tax time.
If deductions were a big source of savings for you during tax season, you may want to consider if it’s worth losing the contractor or freelancer status.
[Related: 7 Types of Companies You Should Never Work For]
Your new position may come with hidden costs.
As you climb the company ladder, you may see some unexpected expenses start to crop up.
For example, if you’ve been promoted to a different position, a wardrobe change may be required. Perhaps you got away with two pairs of khakis and a handful of polos before, but your new job requires a full supply of business suits and accessories.
If you’ll be traveling more, you may need to buy new luggage or other accessories.
What about clients? Are you taking on big sales responsibilities, or other important meetings with clients? If so, you might be asked to take some VIPs out to dinner — and foot the bill until reimbursement time. Those Friday morning bagels for the staff don’t just magically appear, either.
[Related: Why Is Pay So Darn Emotional?]
The work may outweigh the compensation.
Finally, after thinking critically about all these potential costs, it’s time to really weigh the benefits of this new opportunity. In the end, no matter how the numbers add up or how many pro/con charts you make, you’ll still end up ruminating on the highly subjective and personal question: “Is this really worth it?”
If your raise is purely merit-based, and you’re not being asked to take on additional responsibilities or being promoted to a higher position, this may be a no-brainer. But everyone else must weigh the intangible costs of advancing their career.
Of course, it feels good to know that your skills are valued, to be an important part of the team, but you may feel some other things, too. You may feel physically exhausted if you’re expected to work longer hours or cover evening or weekend side-projects.
You may feel more distant from your family and friends if your new position requires regular travel. If you’re stepping into a supervisory role, the stress of managing people can be overwhelming and hard to get used to. Added accountability and responsibility are taxing even on the best days.
So don’t forget to ask yourself if the higher pay is worth what you might lose. There are a lot of factors involved, and knowing about some of these seldom-discussed effects of a raise will help you make the most informed decision possible.
Tags:Bonus, Compensation, Know Your Worth, Raise, Salary, Taxes
Categories: Career Advice, Know Your Worth, Salaries
Originally published at www.glassdoor.com on October 19, 2016.
Originally published at medium.com