CareerReturns · Loyalty Tax
Loyalty Tax Calculator
Every year you stay at your company while external hires get market rates is a year you pay the loyalty tax. Enter your tenure — see exactly what it's cost you.
Median internal raise: ~3%
Job-switcher median: ~5.5%
Year-by-Year Loyalty Tax
Your salary vs. what the market would pay
| Year | Your Salary | Market Rate | Annual Tax | Cumulative |
|---|---|---|---|---|
| 1 | $82,400 | $84,400 | $2,000 | $2,000 |
| 2 | $84,872 | $89,042 | $4,170 | $6,170 |
| 3 | $87,418 | $93,939 | $6,521 | $12,691 |
| 4 | $90,041 | $99,106 | $9,065 | $21,756 |
| 5← peak tax rate | $92,742 | $104,557 | $11,815 | $33,571 |
Loyalty Tax Statement
5 years at one company
Total Loyalty Tax Paid
in foregone earnings over 5 years
Current Annual Tax
$9,557/yr
What you lose each year now
Market Rate (Your Level)
$104,557
vs your $95,000
Switch Now: 5-Year NPV Gain
$69,012
Present value of earnings difference if you move to market rate today
Hindsight: Optimal Switch
Your loyalty tax accelerated fastest at Year 5. Switching then would have landed you at $104,557.
Recover Your Tax
Get a competing offer
The fastest way to correct compression. Use it as leverage or as an exit.
Request a market adjustment
Bring this data to HR. Many companies correct compression when shown the math.
Switch roles internally
Internal transfers often get external hire rates, resetting your salary band.
Frequently Asked Questions
What is a loyalty tax?
The loyalty tax is the cumulative salary gap between what a long-tenured employee earns and what a new external hire in the same role earns. ADP research shows external hires earn 18% more than internal promotions. Over 5 years at a company with 3% annual raises, this compounds to $30,000–$80,000 in lost earnings.
Is job hopping better for your salary?
Yes, statistically. The Atlanta Fed Wage Tracker consistently shows job-switchers earning ~5% more annually vs. ~3% for job-stayers. Over 10 years this compounds to a 50-80% salary advantage. The trade-off is loss of tenure benefits, vesting schedules, and institutional knowledge.
When is the best time to switch jobs?
The loyalty tax accelerates fastest around Years 3-5, when internal promotion rates flatten but market rates keep rising. This calculator shows your year-by-year tax increment to identify the inflection point in your specific situation.
Should I use this to ask for a raise?
Yes. A quantified loyalty tax is a powerful negotiation tool. 'Based on market data, my salary compression over 4 years totals $X' is far more persuasive than 'I feel underpaid.' Bring a competing offer if you can — that remains the most effective lever.