The 248% Tax Rate Nobody Talks About
THE TAX CLIFFS NOBODY TELLS YOU ABOUT
This tweet went viral on Tuesday
He's right. That's Tax 101.
Some guy turned down a $10,000 raise because it would push him from the 12% bracket to the 22% bracket. Twitter laughed at him. "That's not how marginal rates work!"
That guy is an idiot.
But here's Tax 201.
A client called me two weeks ago freaking out. She was about to lose $12,400 because she's projecting $5,000 too much income.
248% marginal tax rate.
Not a typo.
What Happened
She's 58. Husband is 56. They run a consulting business together.
They buy health insurance on the ACA marketplace.
Last year they made ~$85,000. Paid $9,100 for coverage.
This year they're projecting $90,000+.
She got her 2026 premium quote.
$21,500.
That extra $5,000 in projected income was going to cost her $12,400 in lost subsidies.
The Cliff She Almost Fell Off
The ACA subsidy cliff came back.
Enhanced subsidies expired December 31, 2025. Congress didn't extend them.
If your household income exceeds 400% of the Federal Poverty Level, you lose ALL premium tax credits. Not a phase-out. A cliff.
For a couple, that cliff is $84,600.
She was about to blow right past it.
The Fix
We ran the numbers.
$10,000 retirement contribution drops her projected income to $80,000. Well under the cliff.
She keeps her subsidies. Saves $12,400 in premiums. Another $2,400 in federal tax.
$14,800 total savings on a $10,000 contribution.
148% return before her money even grows.
We had until December to sort this out. A ton of people will fall off this cliff and never know.
The Other Cliffs Hiding in the Tax Code
The ACA cliff is the most dramatic. It's not the only one.
QBI Deduction
Accountants. Lawyers. Consultants. Doctors.
20% deduction on qualified business income. $400K profit means $80K off your taxable income. Worth ~$28K in tax savings.
Phase-out starts at $201,775 single / $403,500 married. Every dollar above eats into your deduction until it's gone.
Net Investment Income Tax
3.8% surtax on investment income above $200K single / $250K married.
These thresholds haven't moved since 2013.
One dollar over and every dollar of dividends, interest, and capital gains gets hit.
Capital Gains and Dividends
0% rate up to $94,050 married / $47,025 single.
One dollar over? 15%.
Not a phase-out. A cliff.
Social Security Taxation
Combined income over $25K single / $32K married and 50% of your Social Security becomes taxable.
Over $34K / $44K? 85% taxable.
These thresholds haven't changed since 1993.
One Roth conversion can make your entire Social Security check taxable.
SALT Deduction
Cap went up to $40,400 in 2026. Good news.
Phases out above $505,000. High earners in New York, California, New Jersey might be back to the old $10,000 cap.
Senior Deduction
New for 2026. Extra $6,000 if you're 65+.
Phases out at $75,000 single / $150,000 married.
Low threshold. A lot of retirees will lose part or all of it.
Your Real Marginal Rate
Your AGI says you're in the 24% bracket.
Real marginal rate might be 50%. 100%. 248%.
The stated bracket only tells you federal income tax on your next dollar. It doesn't account for:
- Lost subsidies
- Lost deductions
- Triggered surtaxes
- Benefit phase-outs
Stack a few of these together and your "24% bracket" becomes a 60% effective rate. Or worse.
What To Do About It
Know your cliffs. Model your numbers before year end. Build in a margin of safety.
You don't want a surprise 1099 in January to blow you off a cliff you thought you cleared.
Sometimes a retirement contribution pulls you back under. That's what we did for my client.
Sometimes you defer income to next year.
Sometimes you accept the cost because the income is worth it.
But don't stumble off a cliff because someone told you marginal rates don't matter.
They don't. Until they do.
The Cliffs At a Glance
How We Help
This is exactly what we do at Better Bookkeeping.
Monthly tax planning. Not annual tax preparation.
We model these scenarios before they become problems. We find the retirement contributions, the income deferrals, the entity elections that keep you on the right side of the cliff.
Fill out this form if you want help running your numbers for 2026.