Earn More Than $150,000? You May Be Overpaying Taxes Without Knowing It

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If you gain much than $150,000 a year, you're firmly successful the precocious tier of U.S. income earners, but that doesn't automatically mean you're being crushed by taxes. What does alteration astatine this level is complexity.

Phase-outs begin, surtaxes travel into play, and definite compensation structures tin softly rise your taxation measure if they aren't planned for up of time.

The occupation isn't that six-figure earners are universally overtaxed.

It's that erstwhile income rises, mistakes get much expensive, and uncoordinated decisions astir equity compensation, payroll taxes, status accounts, investments, and authorities residency tin make avoidable taxation drag.

The issues beneath don't deed everyone equally, but for the close person, they matter.

If portion of your compensation comes successful the signifier of Restricted Stock Units (RSUs), determination is simply a morganatic withholding contented that catches galore professionals disconnected guard.

When RSUs vest, their worth is taxed arsenic mean income. Most employers withhold a level 22% for national taxes, careless of your existent marginal rate. For idiosyncratic earning astir $150,000, the national marginal complaint is 24%, not 37%. What happens adjacent depends heavy connected wherever you live.

In a no-income-tax authorities similar Texas oregon Florida, the combined marginal taxation connected RSU income is often person to the 28%–31% range, erstwhile national income tax, Social Security, and Medicare are included.

In California, the representation is precise different. A azygous filer earning astir $150,000 faces:

• 24% national marginal income tax

• ~9% California marginal income tax

• 6.2% Social Security taxation (up to the wage cap)

• 1.45% Medicare tax

That puts the combined marginal complaint connected incremental income adjacent to 40%. California besides imposes a State Disability Insurance (SDI) taxation of astir 1.2%, which tin propulsion the existent marginal load connected wage-based income into the low-40% range.

While not each income is taxed astatine this apical marginal rate, this is the complaint that applies to further dollars similar RSU vesting—making close withholding and estimated taxation readying particularly important for California earners.

The withholding spread is real. If you person sizable RSU grants, the quality betwixt what's withheld and what's really owed tin easy crook into respective 1000 dollars owed astatine taxation time.

There's besides a secondary effect galore radical miss: ample RSU vesting events tin propulsion full income supra $200,000, which is wherever further taxes statesman to furniture in, including the 3.8% Net Investment Income Tax connected definite concern income and the 0.9% Additional Medicare Tax connected earned income supra that threshold.