I believe I am dangerously close to hitting the next tax bracket (25%) this year.

Assuming I put enough of my gross salary into the deferred comp plan offered by my employer to go below that next tax threshold, does the calculation of my "taxable income" still count the amount that i deferred?

Example: If the 25% tax threshold is $75k and I make $77k gross salary, putting $3k for the year into deferred will drop me back into the 15% threshold?

Sorry if a dumb question - I'm a newb...so uneducated financially. I have a lot of homework to do.

Thanks for the help!

This post was edited on 6/4/15 at 8:36 am

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Posted by bobaftt1212

Hills of TN

Member since Mar 2013

1315 posts

Posted on 6/4/15 at 8:43 am to tdevil1

only the 2k would be taxed at the new rate.

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Posted by tdevil1

Member since Mar 2007

154 posts

Posted on 6/4/15 at 8:45 am to bobaftt1212

quote:
only the 2k would be taxed at the new rate.

regardless of what I put into deferred comp?

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Posted by Brummy

Central, LA

Member since Oct 2009

4497 posts

Posted on 6/4/15 at 8:47 am to tdevil1

Like the poster above said, when you go into a higher tax bracket, the higher rate doesn't apply to your whole income, just the amount that exceeds the threshhold, so jumping through hoops just to try to stay in a lower top marginal rate doesn't usually make a lot of sense, although putting away extra into savings/retirement is rarely a bad idea.

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Posted by tdevil1

Member since Mar 2007

154 posts

Posted on 6/4/15 at 8:56 am to Brummy

Got it - thanks for the help. I'm just starting to really try to educate myself on taxes, retirement, debt reduction, etc.

I still have around $50k in graduate school loan debt, so I'm trying to figure out a healthy balance between saving for retirement and paying down the loan as quickly as possible.

Thanks again!

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