The Truth About Tax Brackets: No, Earning More Doesn’t Mean You Pay More on Everything

There’s a popular myth that sounds believable, but it’s wrong:

“If I get a raise and move into a higher tax bracket, I’ll actually take home less money.”

Let’s clear this up once and for all. That’s not how Canadian tax brackets work.

In this post, I’ll walk you through how our income tax system works, the difference between marginal and average tax rates, and show you real-life examples so you can see the truth for yourself.

What Is a Tax Bracket?

Canada uses a progressive tax system. That means your income is taxed in layers, not all at once at a single rate.

Each “tax bracket” applies only to the portion of income that falls within that range. This is called a marginal tax system.

So when your income increases and you enter a new bracket, only the income above that threshold is taxed at the new, higher rate—not your entire salary.

2025 Federal Tax Brackets (Canada)

Here are the federal tax rates for individuals in 2025:

• 15% on the first $57,375

• 20.5% on income from $57,376 to $114,750

• 26% on income from $114,751 to $177,882

• 29% on income from $177,883 to $253,414

• 33% on income above $253,414

In Ontario, combined federal + provincial tax rates go up to 53.53% on very high incomes, but again—this applies only to the portion above the top threshold.

Real Examples: $50K vs $70K vs $100K Income

Example 1: $50,000 income

Only the first two federal tax brackets apply.

• First $50K taxed partially at 15%

• Your average tax rate (total tax ÷ income) is lower than 15% because the entire income isn’t taxed at the highest rate

You still keep the majority of your earnings.

Example 2: $70,000 income

You move into a higher bracket, but only the amount over $57,375 is taxed at 20.5%.

• The first $57,375 is still taxed at 15%

• The remaining ~$12,625 is taxed at 20.5%

You earn more, and although part of your income is taxed at a higher rate, your total take-home pay still increases.

Example 3: $100,000 income

Your income crosses into the 26% federal bracket, but only the amount over $114,750 would be taxed at 26%. Since $100K is below that line, only the first two brackets apply fully, and the third doesn't apply yet.

Bottom line: You never lose money by moving into a new tax bracket.

Marginal Tax Rate vs. Average Tax Rate

Here’s the key difference:

• Marginal tax rate is the rate applied to your next dollar earned

• Average tax rate is your total tax paid divided by your total income

Example:
At $120,000 annual income:

• Your marginal tax rate may be ~30–35% (federal + provincial)

• But your average tax rate may only be ~22–25%

So your effective take-home rate is much higher than people assume.

Common Myth: “You’ll Lose Money if You Enter a Higher Bracket”

No, you won’t.

This myth assumes your whole income is suddenly taxed at the higher rate, which is false.

In reality, you always keep more of your income as you earn more—though some of it is taxed at a slightly higher rate.

Even if you go from $70K to $75K, you’re still coming out ahead. The extra income gets partially taxed more, but it’s not erased by taxes.

Final Thoughts

Understanding how tax brackets work can help you make better decisions around salary negotiations, side income, and business growth.

If you’ve been hesitating to accept a raise or take on more work because you're worried about paying “too much” tax—don't be. You’ll still take home more money, even after taxes.

If you're unsure how your tax bracket affects your return or need help planning ahead, I’m here to help.
📍 I work with clients across the Greater Toronto Area—and I’ll help you take the guesswork out of your numbers.