Know the real cost of your 2027 owner-pay dollar

Set pay where the marginal line is visible

You are setting next year's salary and distributions from company revenue, and the decision lands on the bank balance. The marginal tax line sets the real cost, not the revenue number. A bootstrapped company lives on cash, so a raise that looks affordable on revenue can still hit a bracket break before the cash position improves. If growth is slow on purpose, the owner-pay decision should be just as deliberate as the burn decision.

The 2027 inflation adjustments were announced on Nov. 5, 2026, and generally apply to returns filed in 2028. The announcement covered almost 70 provisions, including the tax rate schedules and standard deduction amounts. The 2027 inflation adjustments were set at 3.2%, a larger increase than in the previous two years. The next owner-pay dollar can change cost before the raise feels large.

Profit is an accounting line; cash is what pays the payroll. A raise can be profitable in the accounting and still strain the bank balance if collections are slow. The worksheet below turns the raise into a known number before you set the paycheck.

A slower raise can be the better decision when the company is still funding its own growth. If revenue is lumpy, price the raise against the low month, not the average month. The worksheet does not choose the number for you. It removes the surprise from the number you choose, and it keeps the cash test in view.

Build the worksheet before you choose the number

• Pull the standard deduction for your filing status. Start with the 2027 standard deduction: $16,600 for single filers and married filers filing separately, or $33,200 for joint filers.
• Estimate taxable income before the raise. Start with expected owner pay, other wages, and any distributions that affect taxable income, then subtract the standard deduction and other adjustments you expect to take. For 2027, the bracket thresholds apply to taxable income, not a taxpayer's entire salary or gross income.
• Find the current marginal rate. For 2027 single filers, the 32% bracket starts above $208,325, the 35% bracket starts above $264,550, and the 37% bracket starts above $661,375. For 2027 married filers filing jointly, the 32% bracket starts above $416,650, the 35% bracket starts above $529,100, and the 37% bracket starts above $793,650.
• Mark the next bracket break. Use the first threshold above your taxable income, because that is where the next owner-pay dollar changes cost. Treat it as a limit on the worksheet, not a target to chase.
• Price the next dollar. The marginal rate is the cost of the next dollar before payroll, state, or other tax effects. If distributions are part of owner pay, keep the salary line and the distribution line separate, because they can be taxed differently. The total cost is what you compare with the cash the raise will consume.

Make the next dollar a known cost

The common mistake is using total salary instead of taxable income. A founder can set a raise that looks clean on the payroll line and then find the taxable-income line has crossed a bracket break.

Run the worksheet twice. First, price the raise you want. Second, price the raise that stays just below the next bracket break. If the difference is small, the lower number may be the better cash decision. If the difference is large, the extra tax is a known cost, not a surprise.

Owner pay is a recurring expense, like rent and software. If the company funds itself, the raise should survive the same test as any other expense: can the bank balance carry it through the slow month? When the worksheet shows the next dollar crossing a bracket break, either keep the raise below that line or budget the extra tax as a known cost.