I'm not aware of any common tax regime that results in a marginal tax rate of over 100%, which is what you're describing there.
Even if your additional income pushes you into another tax bracket, you will only be paying additional tax on the amount made over the lower threshold. In the UK, for example, the top rate of income tax is 45%, and this is charged only on earning over ~£150,000 annually. If you earned £150,100, you would be £55 cash-in-hand better off than if you'd earned £150,000.
Unfortunately a lot of people don't understand the basic math you described. I know several people who think they lose money after getting bonuses and such.
It's not a matter of losing money; it's a matter of losing certain tax benefits that exceed the value of the bonus. It's a very real issue for people who straddle various thresholds for credits, deductions, and other benefits.
For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.
> For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.
The student loan interest deduction (and this is true of most -- AFAIK, actually all -- deductions with an income cap) doesn't have a sharp cutoff, it has a phaseout -- you get the full deduction up to $60,000, and it is reduced continuously with income down to zero at $75,000.
At $74,000, the maximum student loan interest deduction is a $167 deduction (which, at that income, is worth $42 in reduced tax liability.) Even with a $1,000 bonus that takes you just to the cutoff, its not possible for the loss of the deduction to be "worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes". [1]
It's unfortunate that the system for paying taxes has become so complicated. It's no wonder that people complain about rich people exploiting tax-law. Whereas they simply have the inclination/money to hire accountants that do the books properly, and give them the advice they need to keep their affairs in perfect-tax working order.
Even if your additional income pushes you into another tax bracket, you will only be paying additional tax on the amount made over the lower threshold. In the UK, for example, the top rate of income tax is 45%, and this is charged only on earning over ~£150,000 annually. If you earned £150,100, you would be £55 cash-in-hand better off than if you'd earned £150,000.