Help me figure out what I am going to be doing wrong(tax ?)

[slippingsloth]

Hey everyone,

New attending here, just signed contract for w2 employed position, starting Oct with no partnership track.  So I just got through reading WCI post on "Doctors aren't taxed at 50%" as I am estimating my future tax burden, I estimate it at 47%.  For reference link and numbers, see below.

https://www.whitecoatinvestor.com/doctors-dont-pay-50-of-their-income-in-taxes/

Here is the brief background:

Salary- 380k per annum, renting, no student loans,

single, no kids although will likely be married next year(She makes over 100k, so we would be hit by marriage penalty, by my numbers are tax burden would be worse). For purposes of this exercise I did single and MFJ/MFS but am just listing out my single estimates
I ran the numbers for a given month's paycheck and here is what I get

• 
  
  Gross Pay $31,666.67


• 
  
  Federal Withholding $8,904.19


• 
  
  Social Security $1,963.33


• 
  
  Medicare$459.17


• 
  
  California$3,132.13


• 
  
  SDI$285.00


• 
  
  5.5k annual to in IRA and 18k to 401k  =     $1,958.00        (of note there is no match or employer contribution)

Net Monthly Pay

• 
  
  Net Pay$14,964.85

So lets take 8904+1963+459+3132+285= $14743 (monthly tax burden) x 12month = $176916 (annual tax burden)

Annual tax burden/annual salary = 176916/380000 = 47%

So what am I doing wrong?  Am I just essentially screwed unless I leave California, buy 2 expensive houses, and have 5 dependents? Seems like living on 20k as a resident and paying off loans/investing was kinda comically pointless when compared to 3years resident salary per year in taxes.

 

Confused Sloth

[DMFA]

SS and MCR are only paid on the first $118,500 of your income - so that's going to be $612.25/mo for SS and $143.19/mo for MCR.

Also I think it's a bit misleading to characterize your disability insurance and tax-advantaged investments as part of your tax burden.  Not all of what you didn't put into your checking account was lost to taxes - your investments are going straight into your net worth, not vanishing into the ether.

Also you won't be able to deduct your IRA since you have an employer plan and your AGI > $71k while single, so you're best doing the backdoor roth for that.  Also an HSA would be a tax-deferred option ($3350/yr) if you have a high-deductible (> $1300).  Let's say you do that.

Federal exemption for self $4,000, federal std deduction $6,300

Taxable income: 380,000 - 18,000 - 6,300 - 4000 - 3,350 = $348,350.00
Fed WH = (348,350 - 230,451) * 0.33 + 51,578 = $90,484.67
FICA (SS and MCR) = 0.0765 * 118,500 (max amt) = $9065.25
California state tax = $31,279 (from https://webapp.ftb.ca.gov/taxcalc/Calculator.aspx - CA has different deductions than federal, so this is an estimate)

Total tax based on that: $130,828.92
Tax / gross income: 34.4%

Tax-advantaged amount invested each year: $26,850 ($21,350 tax-deferred, $5,500 pre-tax), though at that amount you should be looking to put away about 3x that (20% of your income is $76k), such as in a taxable account or other investment vehicles, or take a part-time 1099 position and get a solo 401k)

...though one would definitely recommend you continue living like you're on $20k/year as a resident!

[slippingsloth]

Thanks for the counter post, I was hoping I had screwed up because I try to be a good steward of my finances.

 

You are right that I forgot to include standard deductions(still learning and forgot to apply them whenI plugged them in) and that SDI is probably not appropriate to add to this calculation. When I saw what I thought my tax rate was I got a little fiery. I didn't include the 401k/IRA in my number, I had copied and pasted my assumed paycheck for completeness.  Sorry if that was misleading.

It is good to learn that the IRA is no longer a deductible now that my income has increased(whoops, backdoor it is).

Probably going to get added to my soon to be wife's insurance since my work options are not paid with pretax dollars for some unknown reason,  I will look into the HSA/HDHP option to get that 3k off my taxes.

I had been living in a small 800/month apartment going to be renting a 2.4k apartment closer to the new job so likely going to be spending 50-60k next year is the plan

Less confused sloth

[jfoxcpacfp]

@DMFA, my hat is off to you, that was an excellent response. @slippingsloth, if you are added to your fiance's insurance plan, your ability to set up an HSA will be determined by whether her works plan qualifies as a HDHP. If not, you should run the numbers to calculate whether you would be better off to have your own HSA-qualified plan or piggyback on to hers.

[PhysicianOnFIRE]

He was looking at a physician in CA making $200,000 a year, and another in TX (no state income tax) making only $100,000.

Living in a high tax state with almost twice the salary, you will be paying a much higher tax rate, but not the 47% you feared, as broken down above.

I live in a high tax state and make a typical anesthesiologist's salary. I think my overall tax burden last year was ~32% to 33% (Federal, FICA & State). More if you include property & sales taxes of course.

 

 

[The White Coat Investor]

And don't forget that withholding does not equal taxes paid.

[slippingsloth]

I really love this forum and the bogleheads forums.

 

Withholding does not equal taxes paid? Is there a better way to estimate actual taxes due?  I guess I am curious where you would expect the discrepancy to come from?

 

[jfoxcpacfp]

slippingsloth wrote:

I really love this forum and the bogleheads forums.

Withholding does not equal taxes paid? Is there a better way to estimate actual taxes due?  I guess I am curious where you would expect the discrepancy to come from?

Click to expand...

Withholding is only an estimate of what you will owe. Your payroll department is not privy to your other tax attributes, such as capital gains, rental property, itemized deductions, etc. You can find calculators on the net to help you estimate or your CPA can prepare a tax projection for you. For example, we get with our business owners and high earners around November to project where they stand for the year so they can adjust estimated payments or reduce withholding, if necessary.

[Sergio Estavillo]

DMFA wrote:

SS and MCR are only paid on the first $118,500 of your income – so that’s going to be $612.25/mo for SS and $143.19/mo for MCR.

Also I think it’s a bit misleading to characterize your disability insurance and tax-advantaged investments as part of your tax burden.  Not all of what you didn’t put into your checking account was lost to taxes – your investments are going straight into your net worth, not vanishing into the ether.

Also you won’t be able to deduct your IRA since you have an employer plan and your AGI > $71k while single, so you’re best doing the backdoor roth for that.  Also an HSA would be a tax-deferred option ($3350/yr) if you have a high-deductible (> $1300).  Let’s say you do that.

Federal exemption for self $4,000, federal std deduction $6,300

Taxable income: 380,000 – 18,000 – 6,300 – 4000 – 3,350 = $348,350.00
Fed WH = (348,350 – 230,451) * 0.33 + 51,578 = $90,484.67
FICA (SS and MCR) = 0.0765 * 118,500 (max amt) = $9065.25
California state tax = $31,279 (from https://webapp.ftb.ca.gov/taxcalc/Calculator.aspx – CA has different deductions than federal, so this is an estimate)

Total tax based on that: $130,828.92
Tax / gross income: 34.4%

Tax-advantaged amount invested each year: $26,850 ($21,350 tax-deferred, $5,500 pre-tax), though at that amount you should be looking to put away about 3x that (20% of your income is $76k), such as in a taxable account or other investment vehicles, or take a part-time 1099 position and get a solo 401k)

…though one would definitely recommend you continue living like you’re on $20k/year as a resident!

Click to expand...

As usual, DMFA is on point.  One exception is Medicare - it's not limited to the 1st $118,500.  Medicare tax is 1.45% with no wage limit and an additional Medicare tax of 0.9% for single tax filers with wages >$200k.  So, medicare tax up to $200k = $2,900 ($200k x 1.45%) plus medicare tax from $200k to $380k = $4,230 ($180k x (1.45% + 0.9%).  Total Medicare tax = $7,130.

[DMFA]

Sergio Estavillo wrote:

As usual, DMFA is on point.  One exception is Medicare – it’s not limited to the 1st $118,500.  Medicare tax is 1.45% with no wage limit and an additional Medicare tax of 0.9% for single tax filers with wages >$200k.  So, medicare tax up to $200k = $2,900 ($200k x 1.45%) plus medicare tax from $200k to $380k = $4,230 ($180k x (1.45% + 0.9%).  Total Medicare tax = $7,130.

Click to expand...

That's true - I forgot that when busting that out and just rolled it in with SS - so thank you for the correction.

[Gasemup]

I found this webpage / excel file helpful (and free).

http://www.taxvisor.com/taxes/

 

 

[childay]

Also check out Taxcaster from the turbotax ppl