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March 26, 2025 12 mins

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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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Well, the one thing that I would say is the real big
factor on people understandingtheir taxes is, as you said
before.
Let's just say, if someonemakes $50,000, okay, and it's a
single person.
Most people think that if theymake $50,000, that say you're in
the 22% tax bracket for federaltaxes.

(00:21):
They think that the entire$50,000 is taxed at 22%.

Speaker 2 (00:25):
Is it not?

Speaker 1 (00:26):
It is not.

Speaker 2 (00:35):
Welcome to the Sugar Daddy Podcast.
I'm Jessica.

Speaker 1 (00:38):
And I'm Brandon.

Speaker 2 (00:39):
And we're the Norwoods, a married millennial
couple here to help you buildwealth so you can live the life
you've always dreamed of.
Brandon is an award-winninglicensed financial planner with
over 10 years of experience andmillions of dollars managed for
his clients all over the US.
Don't worry, we leave all theintimidating finance mumbo jumbo
at the door Stick with us as wedemystify the realm of dollars.

(01:01):
So it all makes sense.
While giving you a glimpse intoour relationship with money and
each other, we are so gladyou're here.
Let's get started.

Speaker 1 (01:11):
Hey babe, what are we talking about today?

Speaker 2 (01:14):
Today we are talking about how your income is taxed,
because the reality is and Ithink most people think that
their income is taxed in onelump sum.
What?

Speaker 1 (01:28):
do you think?
No, I would definitely agree.
I would say when I ask peopleand I ask this question with
everyone that I work with do youunderstand how you are taxed on
your income?
And majority of the time islike I kind of do and I'm like I
say this is a safe space,there's no dumb questions.
This is an area where, if youdon't understand, it's perfectly

(01:51):
fine to say that you don't sothat you can learn.
And they're like, in allhonesty, I don't necessarily
understand, and I don't thinkthat's the minority people, I
think it's the majority ofpeople do not understand how our
tax system works and how thatcorrelates to how they're taxed
on their income.
For the sake of making thisconversation easy, we're only
talking about W-2 income.

Speaker 2 (02:10):
Okay, so how does it work?

Speaker 1 (02:13):
All right.
So, first and foremost, youneed to understand that our tax
system is a progressive taxsystem.
What that means is is that asyou make more money, certain
dollars are taxed at a higherpercentage.
So the more money you make,technically, the more taxes, the
higher you are taxed on.

Speaker 2 (02:34):
Okay, progressive tax system yes, got it.
What else?

Speaker 1 (02:39):
Well, the one thing that I would say is the real big
factor on people understandingtheir taxes is, as you said
before.
Let's just say, if someonemakes $50,000, okay, and it's a
single person.
Most people think that if theymake $50,000, that say you're in
the 22% tax bracket for federaltaxes.

(02:59):
They think that the entire$50,000 is taxed at 22%.

Speaker 2 (03:04):
Is it not?

Speaker 1 (03:04):
It is not.

Speaker 2 (03:05):
Okay, so what does that mean?

Speaker 1 (03:07):
So, as a single person for 2023, if your gross
income and the money that youare 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%.

Speaker 2 (03:23):
Yes, okay, now any dollar to $11,000 is taxed at
10%.
Yes, okay.

Speaker 1 (03:25):
Now any dollar over $11,000, so at $11,001 all the
way up to $44,725, you are taxed12%.

Speaker 2 (03:38):
Okay, okay.
So we're like going in a tieredsystem.

Speaker 1 (03:44):
Progressive.

Speaker 2 (03:45):
Progressive Got it.

Speaker 1 (03:46):
All right Now any dollar that you make above
$44,725,.
You are now taxed at 22%.
Okay is that most, like I saidbefore, most people will think
that the entire $50,000 wastaxed at 22%, when in reality,

(04:07):
only about a little over $5,000was taxed at 22%.

Speaker 2 (04:11):
Okay, so that's an ARV benefit then 100%.

Speaker 1 (04:13):
It's a.
Mathematically it's a hugedifference.

Speaker 2 (04:16):
So when people are like, oh, I'm getting a raise
but it's going to push me intothe next tax bracket, I should
ask for different benefitsbecause I don't want to be in
that next tax bracket.
Really, that tells us twothings.
One, they don't understand howtheir money's being taxed.
And two, you should always takethe raise.

Speaker 1 (04:35):
Yeah, I've heard people say this numerous times,
so, like as I, using the taxbrackets before you know.
Let's just say, as a singleperson, you were making $44,000.
All right, so it would put youin the highest tax bracket of
your money being taxed as 12%.
Let's just say you got a raisefor $2,000.
So that made you at 46,000.
Some people think now thattheir entire paycheck is going

(04:56):
to be taxed at 22% and it's allover, just an additional $2,000
that was added to their income,and that's not correct at all.
Always take the raise.

Speaker 2 (05:06):
Always take the raise .

Speaker 1 (05:07):
Even if it pushes you into the next tax bracket.

Speaker 2 (05:14):
Only that small percentage that is above and to
the next tax bracket is taxed atthe higher percentage.
Okay, so what about the peoplemaking six figures?
Let's say you're making$110,000.
Can you talk to us about whatthat looks like on the tax scale
, the progressive tax scale?

Speaker 1 (05:28):
Yeah, so as an individual, you know, as a
single person, it's still thesame kind of the same principles
we already talked about.
So the first $0 to $11,000 istaxed at 10%, the next $11,000
to $44,725 is taxed at 12%, andthen the next $44,726, all the

(05:49):
way up to $95,375, is taxed at22%.

Speaker 2 (05:54):
Okay.

Speaker 1 (05:55):
Now the additional amount is taxed at 24% and that
tax bracket goes from$95,376,000 to $182,100.

Speaker 2 (06:06):
Okay, so $182,100 is that next level of that tax
bracket?

Speaker 1 (06:15):
Now here's where you kind of hear people saying that
taxes are quote, unquote.
Maybe semi-unfair is that ifyou see there are, you know, the
tax brackets that we just wentover.
The margin of the tax bracketis not necessarily large.
However, when you jump up tothe highest federal tax bracket,
which is 37%, it's anyone whomakes $578,126 or more.

Speaker 2 (06:40):
Or more.

Speaker 1 (06:40):
So that's like an endless amount of money.
Exactly.

Speaker 2 (06:46):
Okay, that's really interesting so what is it?

Speaker 1 (06:48):
578 126 as a single individual is a 37 tax bracket.

Speaker 2 (06:54):
That amount and higher so then, if I'm making
4.2 million dollars, I'm stillin that tax bracket, correct
Compared to somebody who'smaking the 530, 578,000.

Speaker 1 (07:06):
Correct However very large but here's the thing, and
you know, like I said, I don'twant to get too, you know, into
the weeds, since we're mainlytalking about W2 income.
But majority of times, once youstart to make that amount of
money, normally you're not justa W2 employee.

Speaker 2 (07:21):
And you're yeah, okay , let's not.

Speaker 1 (07:24):
And those can be taxed in different manners.

Speaker 2 (07:26):
Okay.

Speaker 1 (07:27):
But for the sake of the conversation, we want to
talk about W-2 employees.
You know, most people that areworking for someone else as a
full-time employee are.

Speaker 2 (07:34):
Okay, so a progressive tax system your
entire paycheck is not taxed atthe same amount.
There are different tiers, ifyou will, of your paycheck being
taxed at various amounts, andyou should always take the raise
paid and how much you are paid.

Speaker 1 (08:00):
If I understand, that could be a little bit more
difficult if you know you'reself-employed on your own
business, stuff of that nature,because the amount that you're
paid on a monthly basisfluctuates.
But if you are a W-2 employeeand you do not know how much you
are making either each payperiod or each month, that's a
problem because it should be thesame amount you know, outside
of bonuses and commission andstuff like that, your base pay.

(08:20):
You should 100% know andunderstand and that is one of
the first steps in financialplanning how much money do you
have coming in?

Speaker 2 (08:27):
But you've even said that you've asked people and
your clients how much do youmake?
And a lot of times people can'tanswer that.

Speaker 3 (08:37):
Yeah.

Speaker 2 (08:37):
So you're going to work 40 plus hours a week,
likely for somebody else.
If you're not an entrepreneurand you don't know what you're
working for, that's a problem.

Speaker 1 (08:47):
It's also a red flag, because that already tells me
that you're not organized.
You're not paying attention Ifyou don't know how much money
you make, when I would say thatso much of this world revolves
around money and how much youmake and what you're able to do,
and you can't answer thatsimple question.
I'm pretty certain that there'sother things that aren't in
order and definitely need somework and focus.

Speaker 2 (09:08):
And it's not a bad thing.

Speaker 1 (09:10):
I'm not here to shame anybody, but be real about who
you are as a person andunderstand where you need to
have some improvements.

Speaker 2 (09:17):
We're not talking about all that today.
Today we're just talking aboutthe tax brackets and
understanding that your incomeis taxed at multiple levels, in
multiple In a progressive-.
In a progressive way, and youshould always take the raise.
I'm going to just stop there.

Speaker 1 (09:37):
I'm just going to add one extra thing Of course you
are With knowing your income aswell, always take the raise.
I'm going to just stop there.
I'm just going to add one extrathing With knowing your income
as well, you also need tounderstand how your income
affects your eligibility forother things.
Mainly, you always hear peopletalking about a Roth IRA.
There are income limitations tocontributing in the normal
manner to a Roth IRA.
Now, there are alternative waysto utilize a Roth IRA.

(09:58):
If you are above the incomelevels, if you have already
reached above the maximum levelof income to participate in the
normal way, there arealternative ways to do that.
But you need to know thisbecause if you make more than
you, if you have a higher incomethan what's allowed for the
normal way to contribute to aRoth IRA, and you do contribute

(10:18):
to Roth IRA, you're going to bepenalized.
Okay and I've been saying thatbecause I always see on social
media Roth IRA, roth IRA, rothIRA, great.
But you did also make sure thatyou were eligible to use it in
the normal fashion.

Speaker 2 (10:34):
Because I don't look good in orange.
You're not going to go to jail.

Speaker 1 (10:37):
You're just going to go to jail.
You're just going to have afinancial penalty.

Speaker 2 (10:40):
Well, I don't want that either.

Speaker 1 (10:41):
Exactly.
Why throw away money if youdon't have to?

Speaker 2 (10:44):
Okay, we'll save that for another episode.
But at the end of the day, makesure we understand taxes.

Speaker 1 (10:49):
You see how he always wants to weave everything
together.

Speaker 2 (10:51):
Everything rolls into the other parts, which, yes, is
why financial planning is soimportant, but I just wanted to
talk about tax brackets todayand he just won't.
Let me be great, y'all, I'mdone.
Okay, hopefully you learnedsomething.
Share this episode with afriend, because most people
don't know this information.
Talk to you soon, don't forget.
Benjamin Franklin said aninvestment in knowledge pays the

(11:13):
best interest.
You just got paid Until nexttime.
Thanks for listening to today'sepisode.
We are so glad to have you aspart of our sugar daddy
community.
If you learned something today,please remember to subscribe,
rate, review and share thisepisode with your friends,
family and extended network.
Don't forget to connect with uson social media at the sugar

(11:36):
daddy podcast.
You can also email us yourquestions you want us to answer
for our past the sugar segmentsat the sugar daddy podcast at
gmailcom, or leave usa voicemailthrough our Instagram.

Speaker 3 (11:48):
Our content is intended to be used, and must be
used, for informationalpurposes only.
It is very important to do yourown analysis before making any
investment based upon your ownpersonal circumstances.
You should take independentfinancial advice from a licensed
professional in connection with, or independently research and
verify any information you findin our podcast and wish to rely
upon whether.
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