I have decided to make this post on behalf of a close friend. He is a young professional working in San Francisco and making ~ 132K USD per year paid in biweekly fashion. Single and he doesn't own a house or a car, just in case you are thinking is me, :-) I wish.

He showed me his pay stub and I was surprised at how much he was paying, so we agreed on asking to the community. This is his detailed pay stub figures.

GrossPay    PreTaxDeductions    EmployeeTaxes   PostTaxDeductions   NetPay
5,089.01    467.82              1,774.43        4.66                2,841.12

These are the employee taxes:

Description           Amount
OASDI                 306.33
Medicare               70.25
FederalWithholding   1001.81
StateTax-CA           350.05
CASDI-CASDI            44.32

And pre-tax deductions:

Description         Amount
401(k)SavingsPlan   302.99
DentalPlan           10.45
HealthCareSpending    1.28
LongTermDisability   11.11
MedicalPlan          40.32
VacationBuy          97.62
VisionPlan            1.06

Post-tax deductions:

Description                       Amount
Supplemental Life/ AD&D Insur.      4.61 

And finally the allowances:

                      Federal   State
MaritalStatus         Single    Single/Married(with two or more incomes)
Allowances             0        0
AdditionalWithholding  0        0

I understand that he is putting money away in his 401(k) for retirement and that he decided to buy an extra week of vacation so that he gets 4 a year. But isn't it outrageous that ~45% of his paycheck is gone?!!!

I used to think that 130K a year would, simply put, be A LOT of money, but not really if you receive actually half of that once you decide to save for retirement, which I guess is something most people want to do at some point, and have some medical plan. Then if on top you pay rent in SF, decide to own a car or maybe even marry and have a kid...

I can't help comparing to Europe where I lived for a few years. Sure, taxes are very high there, but at least you get something in return, such as medical coverage, affordable universities, government retirements and a long etc.

  • You know a lot of companies in San Francisco offer unlimited paid time off, some of them even formalize it so you really could take advantage of it and have vacation similar to European countries you are familiar with. That's the only place he is getting screwed. – CQM Feb 13 '16 at 8:04
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    Even where unlimited vacation is offered, there are often cultural expectations about just how much you can take such that you're unlikely to truly take that much vacation, especially if your workplace only records on-the-books PTO for true vacations rather than every random sick day or mid-day doctor's appointment. Charging for the 4th week is pretty annoying though (albeit far better than what most Americans get). – Zach Lipton Feb 13 '16 at 8:38
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    "I used to think that 130K a year would, simply put, be A LOT of money" depending how old you are, it's entirely possible that your intuitive ideas of the worth of $x have not moved in line with inflation. For example, 130k of 1998 dollars is @204k of 2018 dollars. 130k of 1978 dollars is over half a million now – AakashM Jun 22 '18 at 8:42

This doesn't look particularly unreasonable, but a few notes:

  • He might be somewhat over-withheld for his taxes because he's claiming 0 federal and state allowances. In other words, his employer may be taking more out for taxes than he'll actually owe. This doesn't mean the money is lost--he'll get back any difference next year when he files his tax return--, but giving an interest-free loan to the government is not all that useful. He can use the IRS's Calculator to work out the proper number of allowances based on his situation and give a new Form W-4 to his employer (or fill one out on the payroll company's website) to set the correct amount of withholding. A tax preparer can also help with this if he's having someone do his 2015 taxes. The more allowances you have, less is withheld from your paycheck for federal and state taxes (this, of course, does not change how much you actually owe, and there can be penalties if you have too little withheld). Note that he should repeat the process at the beginning of next year to see if any changes are required.
  • Some of these amounts will change through the year. The tax for Social Security (OASDI) is 6.2% (the employer pays another 6.2% as well), but only on the first $118,500/year in income. After he earns that much, that deduction will go to $0. CASDI will go to $0 after the first $106,742/year in income. So he'll be taking home somewhat more toward the end of the year.
  • If he rides public transit to work or pays for parking at work, he can likely arrange through his employer to use pre-tax commuter funds to pay for it (the money he spends on it would not be taxed). This could be a few hundred dollars a year in additional savings, depending on his costs. Many employers in San Francisco are required to offer it, so it's worth asking HR about.
  • It's a little misleading to say that 45% of his paycheck is gone. Roughly 6% of his gross pay went to his 401(k). That money is still his; he's just chosen to save it in a particular way. Depending on the choices he's made for his retirement savings, he'll also reduce his tax bill right now and/or during retirement by making these contributions. Some of the other costs also go to social programs that may pay you back (granted, they may not always be as good as those in Europe, but it's not that you'd get nothing in return):

    1. OASDI - This is Social Security, which provides money when you retire (or, in some cases, if you're permanently disabled). His employer also pays an equal amount for this.
    2. Medicare - This pays for your health care when you retire
    3. CASDI - This is California's state disability insurance program
    4. MedicalPlan - Health insurance (note that it actually costs far more than this, but his employer is paying the rest of the cost)

In any case, $130K/year is certainly a lot on a global scale, but San Francisco is a very expensive city, and housing costs in SF have risen a lot lately. You've nicely summed up why a lot of families unfortunately leave the city.


Looking at the numbers quickly, if he makes this amount for the entire year, single, no kids, no investment income, standard deduction only, his taxable income will be about $110,000.* That puts him in the 28% tax bracket. His federal tax would be:

$18,481.25 plus 28% of the amount over $90,750

Which comes out to about $23,800 in tax liability. His federal withholding is $26,047 for the year, so with absolutely no deductions whatsoever, he will be getting a tax refund of about $2200.

I'm not very familiar with the California tax return, but it is entirely possible that he would get a decent sized refund from the state as well. This means that his tax refund could be about the size of an extra paycheck. He may want to consider increasing his allowances, which would make his paychecks bigger and his tax refund smaller.

That having been said, taxes are high, no doubt about it. Remember that when you are in the voting booth. :)

* Here is how I got the taxable income number for the year:

  • $5089 gross pay - $468 pre-tax deductions = $4621
  • $4621 * 26 pay periods a year = $120146
  • $120146 - $6300 standard deduction - $4000 personal exemption = $109846
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    Nice math. I bet it's actually worse than that (and by worse, I mean he's due a bigger refund, so better!), because you wouldn't want to take the standard deduction if you're in California making $132K/year: the state tax deduction alone will be worth considerably more than $6300 for a single person, plus any deductible retirement contributions, and charitable donations. It would certainly be worthwhile for him to adjust his withholding unless he expects a lot of investment income. – Zach Lipton Feb 13 '16 at 6:12
  • @ZachLipton You're right; my calculation above is kind of a worst-case scenario. He should be able to come up with some deductions to lower his tax further. – Ben Miller - Remember Monica Feb 13 '16 at 6:15
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    @Zach retirement contributions aren't itemized; they are either excluded from line 7 (401k etc) or deducted before AGI (IRA). The big factors for itemizing are: state&local tax; home mortgage (not for this OP); unreimbursed medical expenses over 10% AGI (used to be 7.5%, they raised it except for elderly) which for this OP is about $12k; and charity. – dave_thompson_085 Feb 14 '16 at 14:50
  • @dave_thompson_085 Fair point, thanks. In any case, CA state tax alone is going to exceed the standard deduction for a single person with that income, so it would be worthwhile to itemize. – Zach Lipton Feb 14 '16 at 18:19

Keep in mind he is in nearly a 45% tax bracket.

  • 28% Federal
  • 11.2% California, !ast I checked
  • 1.45% Medicare
  • Somewhat less than 6.2% Social Security

Totaling a smidge less than 47%. Also 8.25% sales tax on anything you buy retail.

Mind you that is an incremental rate on his last dollar, not his first. But he's also doing 401k, extra vacay and a few other things. Most of which are paying himself, just not immediately.

No, that's pretty normal.

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