If you earn more than $150,000 a year, you’re firmly in the upper tier of U.S. income earners, but that doesn’t automatically mean you’re being crushed by taxes. What does change at this level is complexity.
Phase-outs begin, surtaxes come into play, and certain compensation structures can quietly raise your tax bill if they aren’t planned for ahead of time.
The problem isn’t that six-figure earners are universally overtaxed.
It’s that once income rises, mistakes get more expensive, and uncoordinated decisions around equity compensation, payroll taxes, retirement accounts, investments, and state residency can create avoidable tax drag.
The issues below don’t hit everyone equally, but for the right person, they matter.
RSUs
If part of your compensation comes in the form of Restricted Stock Units (RSUs), there is a legitimate withholding issue that catches many professionals off guard.
When RSUs vest, their value is taxed as ordinary income. Most employers withhold a flat 22% for federal taxes, regardless of your actual marginal rate. For someone earning around $150,000, the federal marginal rate is 24%, not 37%. What happens next depends heavily on where you live.
In a no-income-tax state 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 marginal income tax
- ~9% California marginal income tax
- 6.2% Social Security tax (up to the wage cap)
- 1.45% Medicare tax
That puts the combined marginal rate on incremental income close to 40%. California also imposes a State Disability Insurance (SDI) tax of roughly 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, this is the rate that applies to additional dollars like RSU vesting—making accurate withholding and estimated tax planning especially important for California earners.
The withholding gap is real. If you receive sizable RSU grants, the difference between what’s withheld and what’s actually owed can easily turn into several thousand dollars due at tax time.
There’s also a secondary effect many people miss: large RSU vesting events can push total income above $200,000, which is where additional taxes begin to layer in, including the 3.8% Net Investment Income Tax on certain investment income and the 0.9% Additional Medicare Tax on earned income above that threshold.
Payroll Taxes
Payroll taxes add another layer of nuance that’s often overlooked.
Social Security tax applies only up to a wage cap (approximately $184,500 in 2026), meaning income above that level is no longer subject to the 6.2% employee portion.
Medicare tax, however, applies to all earned income with no cap, and once wages exceed $200,000 for single filers, the additional 0.9% Medicare surtax applies.
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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 equity compensation planning becomes more important as income moves into the mid-six figures.
ISOs and AMT
Incentive Stock Options (ISOs) are a separate issue, and not something every $150,000 earner needs to worry about. But if you do 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 the market value counts as income for AMT purposes, even if you don’t sell the shares. That can result in a tax bill on gains that exist only on paper.
AMT rates are 26% or 28%, and the exemption phases out as income rises. For earners near $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.
Retirement Accounts
Many high earners do the right thing by maxing out their 401(k), but stop there without realizing additional planning opportunities exist.
Depending on your situation, these can include:
- Backdoor Roth IRAs
- Mega Backdoor Roth contributions (if your plan allows)
- Health Savings Accounts (HSAs)
- Solo 401(k)s for side income
One important update under SECURE 2.0: starting in 2026, high earners (those with prior-year FICA wages over $150,000) must make catch-up contributions on a Roth basis, not pre-tax.
That 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, but underused, tools available, offering deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Asset Location
Most high earners invest across retirement accounts and taxable brokerage accounts, but far fewer think carefully about which assets belong where.
Tax-inefficient investments like 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, since future appreciation is never taxed.
This isn’t about chasing returns: it’s about reducing unnecessary tax drag. Over time, correct asset location can materially improve after-tax results without increasing risk.
State Taxes
State income taxes matter, 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 will generally pay less than the top headline bracket, though still materially more than peers in no-tax states.
Over long time horizons, even modest differences in state tax rates can compound into significant dollars. For those considering relocation, job changes, or multi-state work arrangements, timing and residency rules become critical to avoid paying tax in the wrong place, or twice.
The Real Issue
The common thread across these issues isn’t that $150,000 earners are overtaxed: it’s that taxes become interconnected. Equity compensation, payroll taxes, retirement rules, surtaxes, investment placement, and state residency all interact in ways that aren’t obvious without forward planning.
This is where DIY approaches tend to break down. Filing accurately is not the same as planning strategically.
Want Clarity Instead of Guesswork?
If some of these scenarios apply to you, or could apply as your income grows, a qualified financial advisor can help you understand which rules matter for your situation and which don’t.
SmartAsset offers a free advisor-matching tool that connects you with pre-screened fiduciary advisors who work with high-income professionals. You answer a few questions, review up to three advisor profiles, and schedule introductory calls to see who’s the right fit.
If you earn over $150,000, the goal isn’t to panic about taxes: it’s to understand them well enough that your income compounds instead of quietly leaking away year after year.
