How to Use the Cost of a Raise Calculator
- Choose your perspective. Use Employee View if you received or are negotiating a raise and want to know how much more you’ll actually take home. Use Employer View if you’re a business owner or manager budgeting the true cost of giving an employee a raise.
- Enter your current salary and raise amount. You can enter the raise as a dollar amount, a percentage, or a new total salary — the calculator converts automatically. If you’re entering a percentage, enter the raise percent (e.g., 8 for an 8% raise), not the new multiplier.
- Employee View — enter your tax details. Select your filing status for federal bracket accuracy. Enter your effective state income tax rate — this is the percentage of your income your state actually takes, not the top marginal rate. For a rough estimate, use your state’s flat rate or average effective rate (typically 3–7% for most states). Add any annual pre-tax deductions (401k, health insurance, FSA) and post-tax deductions (Roth 401k contributions).
- Employer View — enter your benefits load. The calculator pre-fills employer FICA at 7.65% (the fixed statutory rate). Add your FUTA/SUTA rate (federal and state unemployment — typically 0.6–3% combined), your annual health insurance contribution per employee, your 401(k) match percentage, and any other benefits costs. For multiple employees receiving the same raise, enter the headcount to see the total fleet impact.
- Click Calculate. Both views show a before/after comparison, a breakdown of every cost component, and a plain-English insight explaining the key numbers.
How Raises Work — Both Sides of the Transaction
Why You Don’t Keep the Full Raise
When you get a raise, every additional dollar passes through multiple tax layers before it reaches your bank account. Federal income tax takes the first cut — and because the U.S. uses progressive brackets, income above certain thresholds is taxed at higher marginal rates. A $5,000 raise that pushes your income from $48,000 to $53,000 crosses the boundary from the 12% federal bracket into the 22% bracket — so the top portion of your raise is taxed at 22%, not 12%. Add FICA (7.65%), state income tax (3–10% depending on your state), and the effective “keep rate” on a raise typically falls between 55% and 70% for most earners in the $50,000–$150,000 range.
The Hidden Cost of a Raise for Employers
When an employer gives a $5,000 raise, the actual cost is not $5,000. Employer payroll taxes add 7.65% immediately — $382 on that raise alone. If the company matches 401(k) contributions at 3% of salary, a raise also increases that match proportionally. FUTA and SUTA unemployment taxes apply to the first $7,000 of wages, so they’re not a factor for raises to already well-compensated employees, but they matter for entry-level positions. All told, a $5,000 raise typically costs an employer $5,500–$6,500 once the full payroll burden is included — anywhere from 10% to 30% above the stated salary increase depending on the benefits load.
The 2026 Federal Marginal Brackets
| Rate | Single — Income Over | Married Filing Jointly — Income Over |
|---|---|---|
| 10% | $0 | $0 |
| 12% | $11,925 | $23,850 |
| 22% | $48,475 | $96,950 |
| 24% | $103,350 | $206,700 |
| 32% | $197,300 | $394,600 |
| 35% | $250,525 | $501,050 |
| 37% | $626,350 | $751,600 |
Employer Payroll Tax Components
| Tax | Rate | Wage Base | Who Pays |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | First $176,100 | Both employer and employee |
| Medicare (HI) | 1.45% | All wages | Both employer and employee |
| Additional Medicare | 0.9% | Over $200k (single) | Employee only |
| FUTA (federal unemployment) | 0.6% net | First $7,000 | Employer only |
| SUTA (state unemployment) | Varies (0–8%) | Varies by state | Employer only |
Frequently Asked Questions
Why does the calculator show I only keep about 60–65% of my raise?
At typical incomes ($50,000–$120,000), the combined marginal tax rate — federal income tax (22–24%), FICA (7.65%), and state income tax (3–7%) — often totals 33–39% on the marginal dollars of a raise. That means you keep roughly 61–67% of each additional dollar. Higher earners in high-tax states (California, New York) may keep as little as 45–50% of a raise. The calculator shows your specific keep rate based on your actual inputs.
Can I reduce how much of my raise goes to taxes?
Yes — the most effective tool is increasing your pre-tax 401(k) contribution after a raise. If you redirect some of your raise directly into a traditional 401(k), that amount is excluded from federal and most state taxable income. It doesn’t reduce FICA, but it can significantly lower the income tax bite. For example, if you got a $5,000 raise and put $3,000 more into your 401(k), you’d only owe income tax on the $2,000 net increase in your paycheck — while still building retirement savings with the full $3,000.
Does a raise affect my employer’s 401(k) match?
It depends on how the match is structured. If the employer matches a percentage of salary (e.g., 3% of base pay), a higher salary means a higher match — which is an additional benefit of the raise. If the match is a fixed dollar amount or capped at a specific contribution level, the raise may not change the match at all. Use the Employer View and toggle the “Does 401k match scale?” option to see the difference in your specific situation.
I got a raise but my take-home barely changed. Is something wrong?
This is common and usually has a straightforward explanation. If your raise pushed you into a higher tax bracket, a larger share of your income is now taxed at a higher rate. Mid-year raises can also cause over-withholding, because payroll systems annualize the new salary and withhold more aggressively to catch up — you’ll typically see a larger tax refund at year-end, but your paychecks may look smaller than expected immediately after the raise. Check your W-4 withholding if your take-home doesn’t reflect what this calculator shows.
What is the employer FICA rate and how is it different from the employee rate?
Both the employer and the employee each pay 7.65% in FICA taxes — 6.2% for Social Security and 1.45% for Medicare — on the same wages. These are separate payments: the employee’s share is withheld from the paycheck, and the employer pays its own matching 7.65% directly to the IRS on top of that. So for every $100 of wages, $7.65 is withheld from the employee and the employer separately sends another $7.65 — $15.30 total going to Social Security and Medicare on $100 of wages.
How should employers think about the total cost of compensation when giving raises?
The standard rule of thumb is that an employee’s total cost to the employer is 1.15 to 1.30 times their base salary, accounting for payroll taxes and benefits. A raise doesn’t always scale the benefits portion proportionally (health insurance premiums, for example, don’t change when salary goes up), so the multiplier on a raise is often closer to 1.08 to 1.12 — about 8–12% above the stated raise amount. The Employer View calculator shows the exact multiplier for your specific benefits configuration.
💡 Tips for Getting More Out of a Raise
- Negotiate the gross, understand the net. When negotiating, always discuss gross salary — that’s the number on your offer letter. But use this calculator before the conversation so you know exactly what different raise amounts mean for your actual take-home, and can evaluate whether a $3,000 raise is meaningfully different from a $5,000 raise in net terms.
- Redirect a portion of your raise to pre-tax accounts immediately. The cleanest way to maximize a raise is to increase your 401(k) or HSA contribution at the same time, so you never feel the full gross amount and therefore never miss it — but your retirement savings grow faster and your tax bill shrinks.
- Review your W-4 after a raise. A mid-year raise can cause your withholding to become miscalibrated. Log into your payroll portal and verify that your projected annual withholding is close to your actual tax liability — you should neither owe a large amount nor receive a large refund.
- Employers: give raises at the start of the year when possible. Raises given in January allow the employee to fully plan their tax year — 401(k) contributions, FSA elections, and withholding — around the new salary. Mid-year raises create partial-year calculation complexity for everyone.
- Employers: total compensation statements build retention. Employees rarely know that their employer pays 7.65% FICA, contributes to health insurance, and provides a 401(k) match on top of salary. A total compensation statement that includes all these costs alongside salary often makes compensation feel more substantial — and costs you nothing extra.