Wait, what? How does that make sense? What does a higher paycheck mean, really?

First off, congratulations!! Your salary has increased—which is a good thing! But, it is important to realize what a higher paycheck means for you. The amount of money you are actually taking home may not have increased as much as you thought, if at all.

This is a sad reality that some of us may not realize once we accept an offer, whether it be at our current company or somewhere new. Why is this the case though, and how can we prepare ourselves to know if this will happen to us?

Why A Higher Paycheck May Not Always Mean A Higher Paycheck

A New Tax Bracket 

Depending on how much your salary has increased, you may be in a new tax bracket. If this is the case and you have jumped up into another tax bracket…the amount your salary is being taxed also goes up. This means that the government is taking more money out of your paycheck than before.

However, even if you did not change tax brackets, there could still be an implication. Since your salary itself increased, this means that even if it is being taxed at the same amount, the government will be taking more money, since the amount that is being taxed is now higher than it was before. If you are not sure what tax bracket your salary falls into, you can check the IRS tax brackets for 2021.

It’s important for you to know where you land, and what a higher paycheck means will impact this.

Different Insurance

If you are at the same organization and received a pay raise, it is likely that your medical, dental, vision and any other insurance you may have will stay the same. However, if you received a pay raise by going to another organization, there may be a difference in the price of mental, dental, vision and any other insurance that you were receiving. As this is all taken out of your paycheck prior to taxes, if the new organization you are working for has a higher monthly price on their insurance options than your prior place, that will be deducted from your salary.

This means it is important when you receive a job offer with a new, higher salary, you find out how much medical, dental, vision, and any other insurance you had will cost you. If it is much higher and your new salary is not that much higher, you may end up taking home less than at your previous job.

A New Commute 

Again, if you are still at the same company and received a pay raise, your commute will likely stay the same. But, if you took a new job offer and are now going into a new building, it is important to thank the new commute into account.

Did you used to drive and now you need to take public transportation? Or, is the opposite true and now you need to purchase a reliable car and start taking gas and car insurance into account? If you are now commuting via public transportation, many employers offer for this money to come out of your paycheck pre-taxed.

This is a great option to choose, but it again makes it important for you to figure out if the pay increase you received is still an increased after factoring in this new expense you did not have before. If you used to have a quick drive to the office, or even if you were able to walk, you were spending minimal (if any) money on your commute. If you now have the expense of public transportation coming out of your paycheck, you may not be bringing home as much as you originally thought.

A higher paycheck is a great thing and an accomplishment you should be proud of! However, it is important for you to figure out what new expenses are coming alongside this increase in your pay, whether that be you paying more in taxes, insurance, or your commute. All of these are things you need to think about with what a higher paycheck means, especially before committing to a new job.

Up front, the salary may seem as though it is higher, making it a no-brainer to take the new job. But, you should find out what the medical, dental, and vision insurance options are and how much that will cost you each month (as well as any other insurance options you may need). You also need to figure out how and if your commute will be changing, and what that will be costing you.

If all of these expenses go up, and the pay increase is not enough to supplement it, it may not be worth taking. The most important thing for you to figure out though? If this increased pay will bring you happiness! Your happiness should always come first, and if what a higher paycheck means increase is bring more stress than anything, that is something to take into account and evaluate.