How Much Income Tax You Pay On a $50,000 and $100,000 Salary

The old adage “nothing is guaranteed in life except death and taxes” undeniably holds true, but at least the former is straightforward. Income taxes, on the other hand, are not.

Hypothetically speaking, if one asked a stranger chosen at random to estimate his/her income taxes for the upcoming tax year, what are the chances that the stranger could give a reasonably accurate estimate? Odds are pretty low. With an unending series of twists and stipulations made annually to the tax code, estimating one’s taxes grows more difficult by the year.

Considering the fact that a fair estimate of one’s after-tax income is a valuable piece of information to anyone and everyone, let’s calculate a basic after-tax income estimate of an individual making $50,000 and living in Orange County, NY. In the interest of simplicity, we will assume standard deductions and exemptions off of taxable income; that there are no credits given for various ventures or contributions to the New York Nonoccupational Disability Benefit Fund, and lastly, that this individual is not a public servant in New York, NY.

Please note that all of these data are for informational purposes only, based on 2014 tax rates, and do not represent any actual person or tax return.

Here's the approximate income taxes paid on $50,000 of annual income:

After an effective federal income tax of roughly 10.5%, a Social Security and Medicare tax of 7.65%, and a New York State tax of 4.81%, the remaining discretionary income is $38,847.68, with which this individual must put towards his/her livelihood expenses: mortgage and car payments, health insurance, housing, retirement, etc. Someone living within their means would need to spend less than $3,237 per month (about 78% of their pre-tax income).

Let’s take another look at the same individual under the same criteria, except this time the individual has received a huge promotion and will be making an annual income of $100,000:

Under these circumstances, this individual is left with a discretionary income of $69,969.43. Contrary to popular thought, despite the fact that income doubled, total tax paid in fact has almost tripled ($11,152.32 in the first scenario, but $30,303.57 in the second).

The reason is that the US tax code is progressive - higher income pushes into higher tax brackets, raising the effective tax rate significantly for any additional income received during the year. In the first scenario, only a very small portion (about $2,000) is taxed at the highest rate of 25%, keeping the total effective tax rate rather low at 11%. But the $100,000 earner has $52,000 taxed at 25-28%, raising their total effective tax rate much higher at 18.2%. Therefore, not only do you pay more in taxes as your income increases, you also pay tax at a higher tax rate.

That said, the $100,000 earner still enjoys approximately $5,808 in after-tax income, still 80% higher than the $50,000 earner.

So what happens to an individual making $500,000 per year?

A half-million dollar earner gets a break on Social Security & Medicare ($17,204, or 3.4%) but gets whacked with a $157,640 federal tax bill (31.5%) and $52,372 to New York (10.5%). They are left with only 55% of their after tax income ($272,784), or $22,400 per month, meaning roughly 45% of their income goes to pay income tax.

Note that these calculations only include taxes directly on income. There are several more taxes that we are all subject to - local sales tax, gasoline taxes, registration fees, excise taxes, and property taxes (renters pay this as a share of their rent) - that are not presented in these figures.

The true calculation will of course vary from the estimate given the natural inclusion of other deductions, credits, taxes and other complexities present in a unique financial situation. Nonetheless, it remains imperative to do these calculations and to be financially aware of federal and state tax policy, so that one has at least a general sense of income set firmly in their pockets at the end of the day. It will surely make personal finance, and when the time comes, even taxes, a little more straightforward.

- Brad

Bradley Gonzalez is currently completing an internship at Stevens & Sweet, and is a student at the University of Notre Dame. He will graduate in 2017.