Saw someone with an effective tax rate of 23% on $285k gross income… that’s pretty low if he’s also counting FICA. Looks like only 15% federal is being withheld. Anyone think he’s set up for a surprise bill?
The Social Security tax stops at $168k, so after that, only Medicare is deducted, which is 1.45%.
168,000 x 0.062 = $10,416 for SS
284,000 x 0.0145 = $4,115 for Medicare
So if he has around $52k withheld from $265k after retirement deductions, that’s about 19.6%, which makes sense if he’s married or head of household. And yeah, Silicon Valley is in CA, so state taxes would still apply.
Briar said:
@Eli
He could be working remotely from a no-income-tax state like Nevada for a company based in CA.
Honestly, it’s kind of annoying to hear people flex their big salary while celebrating no state income tax. I get it, but if you move to a cheaper area, maybe your salary should reflect that… just my opinion.
@Riley
A lot of companies actually adjust pay based on where you live. My spouse is in recruiting and knows exactly how pay scales change for different states. But I don’t really think someone’s pay should change just because they moved to a lower-cost state. Their work doesn’t suddenly become worth less.
@Tian
I agree that pay should reflect someone’s contribution, but in reality, salaries are also based on how much it costs to live somewhere and the competition for jobs in that area. If you open up remote positions, suddenly you have more people willing to work for less if they live somewhere cheaper.
@Tian
If everyone was paid equally regardless of where they lived, offshoring wouldn’t exist. It would just raise the cost in countries that currently benefit from it.
@Riley
But what if people move to a cheaper area because their company won’t give them a raise to match the rising cost of living?
@Eli
Original poster said he’s in a tax-free state and works remotely, so that probably keeps his taxes lower.
Pax said:
@Eli
Original poster said he’s in a tax-free state and works remotely, so that probably keeps his taxes lower.
If he’s a full-time W-2 employee for a CA-based company, though, he might still owe CA taxes.
@Meade
California’s pretty clear on this. If he’s a W-2 employee but not a CA resident, then no. But if he were self-employed, that might be different.
If he’s in a no-tax state, that drops his taxes a lot. And if he’s married or has solar credits, itemized deductions, etc., that could also help. With stock pay in the mix, underwithholding is pretty common.
Hard to tell with limited info, but I’d guess he underwithheld because part of his gross income includes stock pay that’s taxed at 22% initially, even though it mostly falls in higher brackets. Total federal taxes including FICA could be around $70-82k depending on retirement contributions and other factors. If he’s married, it might actually be close to what’s needed, but it’s really just guessing without more info.
@Logan
I’m thinking the same. Might be okay if he’s married and the sole earner, but definitely looks like underwithholding if he’s single.
Alton said:
@Logan
I’m thinking the same. Might be okay if he’s married and the sole earner, but definitely looks like underwithholding if he’s single.
Yep, wouldn’t be surprised if he’s single, has some stock pay, and ends up with a $5k bill when he files.
If he’s married filing jointly and this is the only income, it actually sounds about right.
If he’s filing head of household or married, the withholdings make sense. But if he’s single, it might not be enough.
What app is he using here?