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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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What percentage of income tax do I have to pay for annual ...

Resolved Question:

What percentage of income tax do I have to pay for annual income of $300,000 couple with no kids and with one kid?
Submitted: 8 years ago.
Category: Tax
Expert:  Christopher Phelps replied 8 years ago.

Given your income the dependent exemption will be reduced by about 60% to $1,320 if you are filing as married filing joint. If you are filing as head of household your dependent exemption will be reduced by 90% to $330.


However you file your return, the child tax credit available for children under the age of 17, will be completely phased out because of your high income. Dependent care credits will be phased out as well.


Accordingly, the marginal tax reduction benefit to claiming a dependent for you is about $460 if you file as MFJ, or about $116 if you file as head of household.


Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

Customer: replied 8 years ago.
Reply to Christopher Phelps's Post: Thanks for the reply, but it still didn't anwser my question. I would like to know the percentage of income tax that is going to be deducted from the paycheck, if the annual salary is around $300,000. For example, is it going to be 40% from the paycheck if there is no dependent, or 30% income tax if there is one or two dependent.
Expert:  Christopher Phelps replied 8 years ago.

How often are you paid (i.e. monthly, semi-monthly, etc.)? Are you married or single? How many exemptions on your W-4 do you claim not including the prospective dependent? Do you itemize deductions and if so how much? Also, what percentage of your itemized deductions represent taxes and miscellaneous itemized dedcutions?


These items would be helpful to do your calculation.

Customer: replied 8 years ago.
Reply to Christopher Phelps's Post: I get paid semi-monthly, married and filing jointly with my husband. No exemptions on W-4. No itemize deductions.

Thanks!
Expert:  Christopher Phelps replied 8 years ago.

If you claim married and no withholding allowances your federal income tax withheld using the percentage method would be about $3,195 or 25.56% of your $12,500 semi-monthly pay. FICA withholding will amount to an additiona 7.65% until you reach the $92,400 social security limit. After that the FICA withholding percentage drops to 1.45%.


If you claim one withholding allowance your federal income tax withheld will decrease to $3,150 or 25.19%.


I completed some calculations using the information you gave me to give you some perspective. Assuming a $300,000 salary, married filing joint and claiming the standard deduction, your estimated federal income tax liability will be about $78,400. Adding a child gains you no tax benefit (i.e. from either the dependent exemption or child tax credit) because your income level is such that the exemption and credit is phased out. Further, your subject to AMT which makes your effetcive federal tax rate 28%.


Your best bet to reduce your tax burden is to shelter as much income as you can through all the options available through your employer. This includes maxing 401(k) contributions, invest excess cash in tax-exempts and annuities, defer salary through non-qualified plans, take bonuses in options or restricted stock (do Sec. 83(b) elections), etc.


Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.



Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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