QuoteAfter federal & state taxes (especially in New York) and your other deductions you can turn $125,000 a year into $65,000 real quick.
sands, is it not that something is not right here?
If you mean do I think it's not right as in "the system" then yes. I think its messed up. Why the government needs that much of your money I will never understand. And how you can take six figures and turn it upside down into almost 1/2 of its original value is another magic trick that I'd like to congratulate Uncle Sam on accomplishing.Ok, maybe I am missing something.
125k puts me in the 28% tax bracket. Plus 3% for Illinois state income tax = 31%
so 69% of 125k is about $7100 per month....
As opposed to the $1800 or so per month that I used to make with $30k per year. That's a hell of a difference and it still sounds pretty good to me.
Widwest, please allow me to correct the slight miscalculation of a fellow law student.
You are correct about the 28% tax bracket, but incorrect in the full application of the 28% tax bracket.
Let's assume that we're all geniuses and also assume that we get very lucky and we all end up at Cravath as a 1st year associate in the heart of Big Law Capital (aka - New York City).
We all start at $125,000 a year.
(so far so good)
Oh but then comes in Uncle Sam. (not good) and Sam says congrats kid, you're now in the 28% tax bracket, which means give me $14,325 OFF TOP...PLUS 28% of everything you make above $70,350.
Everything we make above 70,350 is 125,000-70,350 = 54,650. 28% of 54,650 = $15,302.
Now when you add our $15,302 to what we originally had to give off top according to the tax bracket we're in ($14,325) we get $15,302 + $14,325 = $29,627. Let's just call it 30k.
So now, already, the Feds have hit us up for 30k off the top. That takes our $125,000 to $125,000-$30,000 = $95,000. AND WE HAVEN'T EVEN GOT TO STATE TAXES YET.
So, not to be outdone, here comes Mr. State of NY and he says, oh good job kid, I see you're a new corporate lawyer making $125,000 of taxable income, why don't you give me $6,532 off top PLUS 8.54% of anything you make over $100k. Add all that mess up, that equals another $8,667, let's just call it 9k.
So take our $95,000 and take away another 9k and we have $86,000 as take home....
...Oh but wait, this is all assuming you have $0.00 in a 401k, mutual funds, IRA's, health care deductions, dental plan, optical plan, and other benefits. The average person throws in 10% to a 401k ($12,500), which would take $125,000 down to $112,500. Assume all the other deductions round us out to an even 105k, and then we have to do the whole Fed Tax & State Tax thing all over again. All of that mumbo jumbo brings our take home salary to somewhere around $74,000 a year.
Now you see how we can go from $125,000 a year down to $74,000 a year.
However, on a positive note, this is all TAKEHOME. So you divide $74,000 by 12 months, and you're looking to take home over $6,000 a month. That's 6 G's in your pocket each month.
I don't know about you, but that still sounds pretty good to me considering my take home before coming to law school was about 1/3 of that.
This doesn't seem quite right to me. The whole point of 401k, mutual funds, IRA's, health care deductions, dental plan, optical plan, and other benefits is that many of them are "tax shelters" -- meaning that they take your pre-tax income and shove it into an account or other expense that can't be taxed. It is even possible to have other expenses related to work -- like transportation costs -- be paid for from your pre-tax income. People with really huge salaries have more tricks up their sleeves -- they have some of their income, especially bonuses, deferred so that it doesn't hit their taxes right away.
Someone correct me if I'm wrong (I'm no accountant), but I think that the way this example of what happens to your salary was calculated isn't in keeping with reality.