Benzinga and Yahoo Finance LLC may earn commission or income on some items through the links below.
If you earn more than $150,000 a year, you’re firmly in the upper echelon of income earners in the United States, but that doesn’t automatically mean you’re being crushed by taxes. What changes at this level is complexity.
Phase-outs begin, surtaxes come into effect, and certain compensation structures can quietly raise your tax bill if not planned for ahead of time.
The problem is not that six-figure earners are universally overtaxed.
It’s that once incomes rise, mistakes cost more, and uncoordinated decisions about equity compensation, payroll taxes, retirement accounts, investments and state residency can create avoidable tax drag.
The issues below do not affect everyone in the same way, but for the right person, they are important.
If part of your compensation comes in the form of Restricted Stock Units (RSUs), there is a legitimate retention issue that catches many professionals off guard.
When the RSUs are received, their value is taxed as ordinary income. Most employers withhold a flat 22% for federal taxes, regardless of your current marginal rate. For someone earning around $150,000, the federal marginal rate is 24%, not 37%. What happens next depends a lot on where you live.
In a state with no income tax like Texas or Florida, the combined marginal tax on RSU income is often closer to the 28%-31% range, once federal income tax, Social Security and Medicare are included.
In California, the picture is very different. A single filer earning around $150,000 faces:
-
24% federal tax on marginal income
-
~9% California marginal income tax
-
6.2% Social Security Tax (up to the wage limit)
-
1.45% Medicare Tax
This puts the combined marginal rate on incremental revenue close to 40%. California also imposes a State Disability Insurance (SDI) tax of about 1.2%, which can push the true marginal burden on wage-based income into the low 40% range.
While not all income is taxed at this top marginal rate, it is it is the rate that applies to additional dollars such as RSU vesting — makes accurate withholding and estimated tax planning especially important for California earners.
The retention gap is real. If you receive sizable RSU awards, the difference between what is withheld and what is actually owed can easily turn into several thousand dollars owed at tax time.
There’s also a side effect many people miss: large RSU vesting events can push total income above $200,000, which is where additional taxes start to come into play, including the 3.8% Net Investment Income Tax on certain investment income and the 0.9% Additional Medicare Tax on income earned above that threshold.
Payroll taxes add another layer of nuance that is often overlooked.
The Social Security tax only applies up to a wage ceiling (about $184,500 in 2026), meaning that income above that level is no longer subject to the 6.2% employee portion.
The Medicare tax, however, applies to all earned income without a limit, and once wages exceed $200,000 for single filers, the additional 0.9% Medicare surtax applies.
Don’t miss:
For someone earning exactly $150,000, that surtax doesn’t apply, but bonuses or RSU income can push total wages over the threshold quickly, increasing the true marginal rate on those dollars.
This is another reason that equity compensation planning becomes more important as income moves into the mid-six figures.
Incentive Stock Options (ISOs) are a separate issue, and not something anyone earning $150,000 needs to worry about. But if you receive ISOs, the Alternative Minimum Tax (AMT) can create a very real surprise.
Exercising ISOs does not trigger regular income tax, but the spread between the strike price and market value counts as income for AMT purposes, even if you don’t sell the shares. This can result in a tax bill on earnings that only exist on paper.
AMT rates are 26% or 28%, and the exemption is phased out as income increases. For those earning close to $150,000, AMT exposure depends largely on the size of the ISO exercise and total income in that year.
Larger grants or concentrated exercises can still generate five-figure tax bills without careful planning.
Many high earners do the right thing by maxing out their 401(k), but stop there without realizing that additional planning opportunities exist.
Depending on your situation, these may include:
-
Backdoor Roth IRAs
-
Mega Backdoor Roth Contributions (if your plan allows)
-
Health Savings Accounts (HSAs)
-
Solo 401(k)s for secondary income
One important update under SECURE 2.0: starting in 2026, high earners (those with prior-year FICA wages above $150,000) must make catch-up contributions on a Roth, not pre-tax, basis.
This changes the planning calculus for people in their 50s and makes coordination between tax and retirement strategy more important than ever.
HSAs remain one of the most powerful, yet underutilized, tools available, offering deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Most high earners invest in retirement accounts and taxable brokerage accounts, but far fewer think carefully about which assets belong where.
Tax-inefficient investments such as bonds, REITs, and high-dividend funds generally belong in tax-deferred accounts. Tax-efficient growth assets often make more sense in taxable accounts where long-term capital gains rates apply.
Roth accounts are typically best reserved for the highest growth assets, as future appreciation is never taxed.
This is not about chasing returns: it is about unnecessary tax cuts. Over time, the correct location of assets can materially improve after-tax results without increasing risk.
State income taxes are important, but they vary widely by income level and location.
While top earners in states like California, New York and New Jersey face the highest marginal rates, someone earning $150,000 generally pays less than the top top bracket, though still materially more than their peers in no-tax states.
Over long time horizons, even modest differences in state tax rates can add up to significant dollars. For those considering relocation, job changes, or multistate work arrangements, timing and residency rules become critical to avoid paying tax in the wrong place, or twice.
The common thread in these issues is not that those earning $150,000 are overtaxed: it is that taxes become interconnected. Equity compensation, payroll taxes, retirement rules, surtaxes, investment placement, and state residency all interact in ways that are not obvious without advance planning.
This is where DIY approaches tend to break down. Accurate filing is not the same as strategic planning.
If some of these scenarios apply to you, or may apply as your income grows, a qualified financial advisor can help you understand which rules are important to your situation and which are not.
SmartAsset offers a A free advisor matching tool that connects you with pre-screened fiduciary advisors working with high income professionals. You answer a few questions, review up to three advisor profiles, and schedule introductory calls to see who’s the best fit.
If you earn more than $150,000, the goal is not to panic about taxes: it is to understand them well enough that your income compounds instead of quietly leaking year after year.
This article Earn over $150,000? You May Pay Excess Taxes Without Knowing It Originally appeared on Benzinga.com
© 2026 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.