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Comment by freeone3000 | Hacker News Reader

> earn a penny more

That is not how marginal tax rates work. Each income band is taxed at the rate for that band. It’s why it’s called “marginal” - because the rate change happens at the margin between brackets.

You are taxed 0% on your first £12571. You are taxed 20% on your next £37669, or, £7359.80 on £50270 of income. If you then earned one more pound, or £50271, you would owe £0.40 (40%) on that one additional pound only, for a total of £7361.20. There is no income stage where earning more money has you taking home less.

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> There is no income stage where earning more money has you taking home less

If you go from £99,999 to £100,000 and have pre-school aged children, you lose £2000 in tax-free childcare per child. If you have 2 children, that extra penny cost you £4000, 3 children, £6000, you take home less, fact.

Combined with the 60% marginal rate, you now have to get to £110,000 just earn the same you did at £99,999 and then there's the side point that a couple can earn £99,999 each, or £198,999.98 and still benefit from it while any single parent who hits £100,000 loses it completely, so a single parent high earner loses out vs a couple. I'm not a single parent but that doesn't seem reasonable to me.

EDIT: and that person who hit £100,000 has the extra burden of having to file a tax return from now on simply because they hit an arbitrary number, and despite being on PAYE, though perhaps some people love doing tax returns, so not necessarily a negative point.

https://www.gov.uk/tax-free-childcare

> If you go from £99,999 to £100,000

That's not where I would say the line between working class and middle class should be drawn.

> There is no income stage where earning more money has you taking home less.

there are several

there's one at around 50k (where child benefit is removed) and another at 100k (where childcare vouchers are removed)

Yes exactly at 100k you lose free childcare. It’s not a taper you lose the whole thing.

Here’s an explanation of the figures:

https://www.thetimes.com/business-money/money/article/high-i...

Yes, once you go from 99,999 to 100,000 you lose 2000 per pre-school aged child you have and have to file your own tax returns for the privilege despite being PAYE.

The latter is no longer true

Also at £100k you start to lose your tax-free personal allowance. The commitment of successive governments to avoid raising taxes on "ordinary working people" has created a bizarrely inconsistent tax regime for above-average earners, where people earning £65k could end up paying a much higher marginal rate than people earning £165k.

https://taxpolicy.org.uk/2024/10/17/reform-income-tax-end-th...

How many preschool age children do you have?

Annoying that those are, it’s probably more accurate to say you don’t qualify for benefits when you earn considerably more than the median wage (£38k).

Also, if you’re paying a decent amount in to your pension your effective salary is lowered and won’t hit that child benefit threshold until your salary exceeds £60k or more, and you still get to keep all of that money.

Tax free childcare is already extremely lacking in my opinion, if you want professionals to work, it shouldn't be extortionate to have your children in nursery, and costing you 2000 per child per year for one parent earning 100,000 when two parents can earn 99,999 each is also ridiculous.

The real kicker is the 99,999->100,000 trap where you lose all tax free childcare care allowance, £2000 per year per child, it's assessed quarterly, and if you exceed it by a single penny, not only do you lose it, they also demand immediate repayment of all childcare allowance so far that year.

>>they also demand immediate repayment of all childcare allowance so far that year.

So this might or might not be in line with official guidance but I was exactly in this situation and I expected to earn around £99k last tax year then I was given an unexpected £4k bonus in my march salary, and I wasn't told about it until it was in my account already so it was too late to put it into pension. I asked HMRC about it and they said as long as I was being truthful at every quarterly questionnaire where they ask if you expect to make over £100k and I told them the situation changed as soon as I became aware of it I don't have to pay anything back for the free childcare hours. I asked my accountant and she said since I have it in writing it should be fine(but HMRC can always change their mind so who the hell knows).

Compare that to the insane situation of the benefit for carers where people are being asked to repay benefits going back years if they went over the threshold by a single pound - I imagine HMRC is being incentivieed to go after benefit takers more than other areas like childcare hours, for various more or less political reasons.

That sounds extraordinarily linient of them, but I suspect as you say, it's political.

I take it you lost your allowance for the rest of the year due to the bonus?

Luckily for me the childcare tax people contacted me about it the first time it could have become an issue because I received a bonus at the start of a tax year, so I adjusted my pension contributions for the rest of the year lowering my take home. By this point though I'd already been taxed that marginal 60% thanks to the bonus being paid to me, like yourself without being notified.

> That sounds extraordinarily linient of them, but I suspect as you say, it's political.

knowing HMRC it's because they can't figure out how to work it out

at least without giving infosys/fujitsu a couple of hundred million quid

It's a classic result of step functions, which are popular in tax codes and regulations.

For example, if you pollute 99 ppm, then you're good. If you pollute 100 ppm, you're bad.

I once half seriously proposed a limit on the second derivative of effective rates like this but imagine explaining that to a politician these days...

Don't quote me but I don't think this is quite true if you take tax credits and other "benefits" into account - especially when it comes to child support.

That is only true of income tax. Not all taxes are marginal, and several have thresholds that behave exactly as the OP described.

The people arguing only seem to care about income tax and NI, ignoring that other taxes exist at almost every level on your money.

Moreover they generally make the argument, have marginal tax rates explained and then rapidly go off looking for some specific welfare policy where this is sort of true.

Because if they knew about the welfare policy before they started typing, they would've actually mentioned it then - it's a specific problem, with several obvious solutions (i.e. don't means test at all or taper off more gently) unrelated to the concept of tax brackets (and potentially not related to the actual bracket index values themselves.

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