Wisconsin raise calculator

What a raise is worth after inflation

Three numbers, and the letter only quotes the first.

The gross increase is the percentage applied to your salary. The after-tax increase is what survives withholding at your marginal rate. The real increase is what is left once you account for the fact that prices moved during the same period.

The third one is the one that answers the question people actually have, which is whether they are better off than they were last year. It is computed properly here rather than by subtraction: the real percentage is the raise ratio divided by the inflation ratio, not the raise minus inflation. On small numbers the two are close, and on large ones they are not.

The worked example, at the default inputs

The calculator opens on a $75,000 salary, a 3.5% raise and 3% inflation over the same period. It reads the federal brackets, the FICA rates and your state's income tax from the published figures, so the only thing you supply is the raise.

• Gross increase: 3.5% of $75,000 is $2,625. The new salary is $77,625.
• Federal income tax: the raise falls in the 22% band, so $578.
• FICA: 7.65% of the raise, so $201.
• State: $0 in Texas, $130 in Illinois at its flat 4.95%, and not calculated in California because we publish its top rate but not its full bracket table.
• Kept in Texas: $1,847, about $154 a month, which is 70% of the raise.
• Real increase: 1.035 divided by 1.03, less one, is 0.49%.
• Real value: 0.49% of $75,000 is about $364 a year in purchasing power.

Note how far the number falls between the first line and the last. A raise that reads as $2,625 in the letter is $154 a month in a Texas account, $143 in an Illinois one, and measured against what it buys, roughly $364 a year. Nothing here is a trick. It is simply three different questions, and the letter answers the least useful one.

A second example: the same raise, higher inflation

Change the inflation field from 3% to 4% and leave everything else alone.

The gross increase is still $2,625. The amount kept is still $1,847 in Texas. But the real percentage becomes negative 0.48%, and the tool flips its headline to read as a real pay cut worth about $361 a year.

That is the same raise, the same letter, the same larger deposit each month, and a household that can buy less than it could a year earlier. The direction changed because prices moved faster than pay, and no amount of framing in the letter alters it.

Run it the other way for contrast. Set the raise to 5% with inflation at 3%: the gross increase is $3,750, after tax $2,925, and the real increase is 1.94%, worth about $1,456 a year. Between a 3.5% raise and a 5% raise, against the same 3% inflation, the real value moves from $364 to $1,456. The gross difference is 1.5 percentage points; the difference in what it buys is four times over.

Why does a raise below inflation count as a pay cut?

Because pay is only interesting relative to what it buys.

If your salary rises 2% and the prices of the things you buy rise 3%, you can afford less at the end of the year than at the start. The deposit is larger and the shopping is smaller. Describing that as a raise is accurate about the payroll system and misleading about your position.

This is not a rhetorical point, and it is worth being precise about it: the tool computes 1.02 divided by 1.03, less one, which is negative 0.97%, and reports it as a real pay cut rather than as a small raise. Every one of those years compounds with the next, which is why a run of below-inflation increases is much worse than any single year looks.

The inflation figure to use is the one covering the period the raise covers, not the headline number for last month. Twelve-month changes in the Consumer Price Index are published monthly, and the year-over-year figure for the month your review covers is the right comparison. Where your own spending is unusually weighted, say towards rent or childcare, the general index understates or overstates your position, and our cost of living pages go through why.

Does crossing a tax bracket cost you money?

No, and this is the single most persistent misunderstanding about pay in the United States.

Federal income tax is marginal. A bracket rate applies only to the income inside that bracket, never to the whole salary. If a raise lifts $2,000 of your income above a bracket threshold, that $2,000 is taxed at the higher rate and every dollar below the threshold is taxed exactly as it was before. There is no point on the schedule where earning one more dollar leaves you with less money.

The calculator applies a single marginal rate to the whole increase, which is a simplification in the other direction. If a raise straddles a threshold, part of it is taxed at the lower rate and part at the higher one, so the true after-tax figure sits slightly above what a flat application of the higher rate produces. Enter the rate that applies to most of the increase and treat the result as close rather than exact.

Two genuine effects do exist, and neither is the bracket itself. Some tax credits and deductions phase out over income ranges, and losing one can be worth more than the extra tax. Some benefits, such as subsidised health cover or an income-driven student loan payment, are calculated from income and change when it does. Those are real, they are specific to a household, and they are not modelled here. The tax section covers how marginal rates actually work, and a withholding check after a raise is usually worth ten minutes.

The knock-on effects the tool does not model

A raise moves more than the salary line, and several of the movements are helpful.

• Retirement contributions. If you contribute a percentage rather than a fixed dollar amount, your contribution rises with the salary automatically, and so does any employer match calculated as a percentage. That is money the after-tax figure on this page does not show, because it never reaches your account in the first place.
• Percentage-based bonus. A bonus quoted as a percentage of salary rises with it.
• Pension and insurance formulas. Where an employer plan is calculated from salary, the raise moves those too.
• Withholding. Payroll will adjust, and the first cheque after a raise is often not a clean guide to the new normal, particularly if the raise is backdated.
• Anything means-tested. Covered above, and it can move in the unhelpful direction.

The first of those is the reason a raise is often worth somewhat more than this page suggests, and the last is the reason it is occasionally worth less. Neither is guesswork you should have to do: your payroll portal will show the contribution percentage, and the plan documents will show the match.

Common mistakes reading a raise letter

• Reading the percentage and stopping. The gross percentage is the least informative of the three numbers on this page.
• Comparing against the wrong inflation figure. Use the change over the period the raise covers, not the most recent month, and not a forecast.
• Subtracting inflation from the raise. Close enough at small numbers, wrong at large ones. The tool divides the ratios, which is the correct operation.
• Believing a bracket applies to the whole salary. It applies only to the income above the threshold. Nobody takes home less by earning more.
• Assuming the monthly figure is the after-tax figure. $2,625 gross is about $154 a month in Texas once federal tax and FICA come out, and less again in a state with an income tax. That gap surprises people every time.
• Ignoring a promotion with no raise. A title change with a below-inflation increase is a real reduction in pay for expanded work, and the letter will not describe it that way.
• Treating one good year as a trend. Real pay is the compounding of several years, and one above-inflation year does not undo three below it.

What should you check when the raise letter arrives?

• Confirm the effective date, and whether the raise is backdated
• Check the new salary figure against the percentage quoted
• Look up the twelve-month inflation figure for the period the raise covers
• Confirm whether your retirement contribution is a percentage or a fixed amount
• Check the first two pay statements after the change against the expected figure
• Review your withholding, particularly if the raise is large or mid-year
• Note whether any benefit you receive is calculated from income

If the real figure is negative, that is worth knowing before the next review rather than after it. It is also worth knowing what the employment cost index and average earnings data show for your occupation, since a below-inflation increase in a year when the market moved is a different conversation from one in a year when it did not. Our paycheck tools will show what the new salary looks like after all withholding rather than at one marginal rate.

This page explains arithmetic on figures you supply. It is not tax advice or a projection of inflation. See the disclaimer and our methodology.