An Alternative to a Raise: Compare the Real Cost

What a raise really costs

A raise costs more than the number on the offer letter. The IRS says the Social Security tax rate is 6.2% for the employer and 6.2% for the employee, and the Medicare rate is 1.45% for the employer and 1.45% for the employee (IRS Topic no. 751). The employer share is 6.2% plus 1.45%, which is 7.65%. On a $1,200 raise that is about $92, so the raise costs the employer $1,292.

A raise is also usually permanent. Next year's pay starts from the higher figure, so the same increase is carried forward into every later year. A one-time cost and a standing cost are different decisions.

Why the employee keeps more with Amplify, in the illustration

The employer cost is the same in both columns, so the difference comes from what reaches the employee and how it is taxed. A $1,200 raise is taxed in full. At the illustrated 26% rate that is $312, and the employee keeps $888.

Amplify's Terms of Service describe the tax treatment this way: cash back you earn up to the amount of the membership fee is reported as imputed income, in the same way a lifestyle spending account is. Cash back above that amount is not taxable. This describes how the program is reported. It is not tax advice, your own circumstances may differ, and you should speak to your own adviser.

Applied to the illustration, tax applies to $1,200 of the $1,500 in cash back, which is $312 at the illustrated rate. The other $300 reaches the employee untaxed. The employee keeps $1,188.

How the 34% is worked out

$1,188 divided by $888 is 1.34, so the employee keeps 34% more after tax, at the same $1,292 employer cost.

The same ratio holds at every Amplify membership level, because at every level the maximum cash back is 1.25 times its fee. This page shows one level only. Each figure assumes the employee uses their full eligible spending, as stated above, and that cash back is earned only on qualifying purchases at enrolled merchants in the nine essential categories.

Other ways to give more than a raise

A one-time bonus. It is paid as taxable pay, and it does not raise next year's base. It solves a moment, not a monthly squeeze.

A stipend or allowance. Compt describes an employee stipend as employer-provided funding for a defined purpose, generally taxable unless the expense qualifies for a specific tax exclusion (Compt). Our guide to helping employees with grocery costs compares stipends with four other approaches.

A lifestyle spending account (LSA). Forma, Benepass and Compt each describe LSA spending as generally taxable income, with exceptions for some expenses (Forma, Benepass, Compt). See our LSA vs cashback card comparison for where each fits.

A discount program. It lowers a price at partner retailers and does not return money on spending. Our grocery guide covers how it compares.

Where Amplify fits, and where it does not

What it is. Amplify is an employer sponsored employee benefit that gives 10% cash back on essential purchases. The employee funds an Amplify account with their own money, spends it with an Amplify card, and receives the cash back into the same account on qualifying purchases. The card works only where both the category is covered and the merchant is enrolled. The nine essential categories are groceries, housing, gas and electric, water and sewer, internet, mobile phone, fuel, childcare and auto repair. Anything else declines.

What the employer pays. A fixed annual membership fee for each enrolled employee, and only for employees who enroll. Limits and any fees are set out in the enrollment package and will be published before enrollment opens.

Where it does not fit. Amplify is a benefit, not part of pay. There is no cash out: no ATM withdrawal, no transfer out and no payout of a balance. It is not a bank, a loan or credit card, an investment or insurance, and it is not tax advice. It has not launched. Amplify launches in New Jersey and is selecting its founding employer cohort now. No launch date has been announced.

See Amplify for businesses for how the benefit is presented, and the Amplify FAQ for common questions.