Taxes on a Million Dollars of Earned Income

Did you know that a high income can become one’s own enemy? It can also lead to a hefty tax bill — have you ever had to pay taxes on a million dollars?

Taking a deep dive into first-world problems, we’ll see precisely how much one might pay in taxes on a million-dollar annual salary or in taxes on a million dollars of earned income over longer timeframes.

It might be a little. It might be a lot. It depends greatly on how long it takes to accumulate those earnings. In today’s post, we’ll calculate the taxation on households earning $100,000 a year, $250,000 a year, and $1,000,000 a year as W-2 employees.

Earning $1 Million in Ten Years The combined salaries in our first household add up to $100,000 a year. After subtracting the $24,800 standard deduction and $39,000 in tax deferral, they’ll owe federal income tax on $36,200 or 36.2% of that $100,000 income.

They have two children under the age of 17 but are past the daycare years. They live in a state with a mid-range total state & local income tax at a flat 5% of their federal taxable income per year.

The numbers below calculated for 2020, ignoring the stimulus payments and additional child tax credits, as those one-time credits will not likely be repeated year after year. All calculations were made with assistance from TurboTax TaxCaster. Depending on your tax situation, you may be able to file for federal and state income taxes for free with TurboTax.

Earning $1 Million in Ten Years

The combined salaries in our first household add up to $100,000 a year. After subtracting the $24,800 standard deduction and $39,000 in tax deferral, they’ll owe federal income tax on $36,200 or 36.2% of that $100,000 income.

The tax calculation on $36,200 of taxable income gives them a federal income tax of $3,952. The tax credit of $2,000 per child gives them a $4,000 credit.

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