Earning more than $150,000 a year puts you comfortably in the upper tier of American earners. But here's the thing: it doesn't mean you're automatically getting crushed by taxes. What it does mean is that your tax situation just got a lot more complicated.

This is where phase-outs start creeping in, surtaxes begin layering on top of each other, and certain types of compensation can quietly balloon your tax bill if you haven't thought them through. The real problem isn't that six-figure earners are universally overtaxed. It's that once your income crosses certain thresholds, mistakes get expensive fast.

Uncoordinated decisions around equity compensation, payroll taxes, retirement accounts, investment placement, and where you actually live can create what tax professionals call "avoidable tax drag." Not every issue below will apply to everyone, but if you're in the right situation, these details matter a lot.

The RSU Withholding Trap

Let's start with Restricted Stock Units, because this one catches a surprising number of professionals off guard. When your RSUs vest, the IRS treats their value as ordinary income. Simple enough. But here's where it gets interesting: most employers withhold a flat 22% for federal taxes, regardless of what you actually owe.

If you're earning around $150,000, your federal marginal rate is 24%, not 37%. But that's just federal. What you actually pay depends heavily on geography.

Living in Texas or Florida? No state income tax means your combined marginal tax on RSU income typically lands somewhere in the 28% to 31% range once you factor in federal income tax, Social Security, and Medicare. Not terrible.

Now let's talk about California. A single filer earning around $150,000 faces a very different reality. You're looking at 24% federal marginal income tax, roughly 9% California marginal income tax, 6.2% Social Security tax up to the wage cap, and 1.45% Medicare tax. That puts your combined marginal rate on incremental income close to 40%.

California also tacks on State Disability Insurance of roughly 1.2%, which can push the true marginal burden on wage-based income into the low-40% range. While not every dollar you earn gets taxed at this top rate, this is exactly the rate that applies to additional income like RSU vesting. That makes accurate withholding and estimated tax planning especially important if you live in a high-tax state.

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. And there's a secondary effect many people miss entirely.

Large RSU vesting events can push your total income above $200,000, which is where additional taxes start piling on. That includes the 3.8% Net Investment Income Tax on certain investment income and the 0.9% Additional Medicare Tax on earned income above that threshold. So a big vesting event doesn't just create a withholding gap, it can trigger entirely new layers of taxation.

Payroll Tax Nuances That Actually Matter

Payroll taxes add another layer that's easy to overlook. Social Security tax only applies up to a wage cap, which sits at approximately $184,500 in 2026. Once your income crosses that threshold, you stop paying the 6.2% employee portion on earnings above it.

Medicare tax works differently. It applies to all earned income with no cap whatsoever. And once your wages exceed $200,000 for single filers, an additional 0.9% Medicare surtax kicks in.

If you're earning exactly $150,000, that surtax doesn't apply to you yet. But bonuses or RSU income can push your 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 the AMT Surprise

Incentive Stock Options are a separate beast entirely, and not every $150,000 earner needs to worry about them. But if you do receive ISOs, the Alternative Minimum Tax can create a very real and very unpleasant surprise.

Here's how it works: exercising ISOs doesn't trigger regular income tax. That sounds great until you realize 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 your total income in that year. But larger grants or concentrated exercises can still generate five-figure tax bills without careful planning.

Retirement Account Opportunities You're Probably Missing

Many high earners do the right thing by maxing out their 401(k) contributions, then 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 them, Health Savings Accounts, and Solo 401(k)s for side income.

Here's an important update under SECURE 2.0: starting in 2026, high earners 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 strategy and retirement planning more important than ever.

Health Savings Accounts remain one of the most powerful but underused tools available. They offer deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. It's about as close to a tax unicorn as you'll find.

Asset Location Matters More Than You Think

Most high earners invest across both retirement accounts and taxable brokerage accounts, but far fewer think carefully about which assets belong where. This is called asset location, and it can make a meaningful difference over time.

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 or getting clever with market timing. It's about reducing unnecessary tax drag. Over time, correct asset location can materially improve after-tax results without increasing risk.

State Taxes Aren't Just a Footnote

State income taxes matter, and 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. But it's 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 worse, paying it twice.

What This All Really Means

The common thread across all these issues isn't that $150,000 earners are overtaxed. It's that taxes become interconnected in ways that aren't immediately obvious. Equity compensation, payroll taxes, retirement rules, surtaxes, investment placement, and state residency all interact with each other. Miss one connection and you can end up paying more than necessary.

This is where DIY approaches tend to break down. Filing accurately is not the same as planning strategically. You can get your return done correctly and still leave money on the table every single year.

Moving From Guesswork to Strategy

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. 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.

High-income tax planning isn't about finding loopholes or gaming the system. It's about making informed decisions when multiple moving parts interact. The difference between coordinated planning and reactive filing can easily run into tens of thousands of dollars over time. And unlike market returns, tax efficiency is something you can actually control.