Tax Planning for High-Income Households

Once your income passes about $200,000 (single) or $250,000 (married), the tax rules start to shift. Extra taxes kick in, some accounts close to you, and bonuses and stock pay bring new traps. The good news is that almost all of it is predictable, so a little planning goes a long way.

1. What counts as "high income" for taxes?

The IRS has no official "high earner" label. But several rules switch on at about the same place: $200,000 of income if you're single or head of household, and $250,000 if you're married filing jointly.

Many of these rules test your MAGI, or modified adjusted gross income, which is your AGI (the "adjusted gross income" line on your return) with a few items added back. For most working people, MAGI and AGI are the same or very close.

Above those lines, two surtaxes can apply. A surtax is an extra tax on top of regular income tax:

A 0.9% Additional Medicare Tax on wages.
A 3.8% Net Investment Income Tax on investment income.

We'll cover both. First, a quick reminder about how brackets work, because it clears up a lot of worry.

2. Your top bracket isn't your tax rate

Federal income tax works in slices. Each slice of your taxable income (income after deductions) is taxed at its own rate, so moving into a higher bracket only affects the dollars inside that new slice.

Here are the 2026 federal brackets:

Rate	Single	Married filing jointly
10%	Up to $12,400	Up to $24,800
12%	$12,401–$50,400	$24,801–$100,800
22%	$50,401–$105,700	$100,801–$211,400
24%	$105,701–$201,775	$211,401–$403,550
32%	$201,776–$256,225	$403,551–$512,450
35%	$256,226–$640,600	$512,451–$768,700
37%	Over $640,600	Over $768,700

Example: Tom and Ana's wages rise from $220,000 to $250,000. They take the 2026 standard deduction of $32,200. So their taxable income goes from $187,800 to $217,800.

The first $23,600 of the raise is taxed at 22%. That's $5,192.
The last $6,400 crosses into 24%. That's $1,536.

Their federal income tax rises by $6,728, or about 22% of the raise. Nothing they earned before the raise got taxed more.

3. Payroll taxes: one stops, one starts

Two payroll taxes change as your pay climbs.

Social Security tax stops. You pay 6.2% Social Security tax only on the first $184,500 of wages in 2026. That cap rises to $192,300 in 2027. Once you pass it, your paychecks get bigger for the rest of the year. If you earn $250,000, you might see that bump in the fall, and it's a nice moment to boost your savings instead of letting it disappear into spending.

The Additional Medicare Tax starts. You pay an extra 0.9% on wages above $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately).

Here's the catch: your employer must start withholding it once your wages at that job pass $200,000, no matter how you file. It doesn't know about your spouse's pay.

Example: Priya and Sam each earn $150,000. Neither employer withholds the extra tax, because neither paycheck tops $200,000. But together they earn $300,000, which is $50,000 over the $250,000 line. They'll owe 0.9% × $50,000 = $450 when they file.

4. Bonuses and stock pay

Bonus withholding is often too low

Supplemental wages are pay outside your normal salary, like bonuses and commissions. Most employers withhold a flat 22% federal tax on them. (Bonuses over $1 million get 37%.)

If your top bracket is 24%, 32% or higher, 22% isn't enough. The bonus isn't taxed at a special rate. It just gets added to your income at filing time, and you owe the difference.

Example: Nina is single and earns $200,000. She gets a $40,000 bonus. Her employer withholds 22%, which is $8,800. But her bonus lands in the 24% and 32% brackets, so the real income tax on it is $11,370. She's $2,570 short.

Nina's wages also now top $200,000, so the 0.9% Medicare tax hits $40,000 of them. That's $360, and her employer does withhold it. The $2,570 gap is the part to plan for. She can set it aside or raise her withholding on a new W-4.

RSUs: taxed like salary when they vest

RSUs (restricted stock units) are company shares you're promised. They become yours on a set date called the vest date.

When your RSUs vest, their value is taxed like salary and shows up on your W-2. Employers usually hold back some shares to cover tax, often at that same 22% rate, so RSUs can leave the same gap as a bonus.

That vest-day value becomes your cost basis. Cost basis is the amount you've already paid tax on, so when you sell, you only owe tax on the growth above it. Make sure your basis is right on your return. If it's missing, you could pay tax on the same money twice.

Stock options: know which kind you have

Stock options are the right to buy company shares at a set price. There are two main kinds:

NSOs (non-qualified stock options): When you buy the shares (called exercising), the gap between the price you pay and the market price is taxed like salary.
ISOs (incentive stock options): Exercising usually creates no regular income tax. But that same gap can trigger the alternative minimum tax (AMT).

The AMT is a second way of calculating your tax, with fewer breaks, and you pay whichever result is higher. For 2026, the AMT exemption is $90,100 (single) or $140,200 (married filing jointly). The exemption starts shrinking once AMT income passes $500,000 (single) or $1,000,000 (married filing jointly). Before you exercise a large batch of ISOs, have a tax pro run the AMT math.

5. Investment income and the 3.8% tax

Capital gains rates

A capital gain is your profit when you sell an investment. If you held it more than one year, it's a long-term gain and gets lower rates. For 2026, most high earners pay 15% on long-term gains. The rate becomes 20% once taxable income tops $545,500 (single) or $613,700 (married filing jointly). Gains on things held one year or less are taxed at your regular bracket.

The Net Investment Income Tax (NIIT)

The NIIT is an extra 3.8% on investment income. It applies when your MAGI is over:

$200,000 (single or head of household)
$250,000 (married filing jointly)
$125,000 (married filing separately)

These limits never rise with inflation, so more people owe NIIT each year.

The NIIT applies to interest, dividends, capital gains and rental income. It doesn't apply to wages, withdrawals from retirement accounts, or interest on municipal bonds. You pay 3.8% on whichever is smaller: your investment income, or the amount your MAGI is over the line.

Example: Raj is single. He earns $250,000 in salary and has $15,000 of long-term stock gains. The gains are taxed at 15%, which is $2,250. His MAGI is $265,000, or $65,000 over the line. The smaller number is his $15,000 of gains, so NIIT is 3.8% × $15,000 = $570. His total federal tax on the gains is $2,820.

Notice that NIIT hit only his gains. His salary pushed him over the line, but salary itself isn't taxed by NIIT.

6. Retirement accounts when your income is high

High income closes some doors and makes others more valuable.

Your 401(k) is worth more. For 2026, you can put up to $24,500 into a 401(k). If you're 50 or older, you can add $8,000 more. If you're 60 to 63, the extra is $11,250 instead. A pre-tax dollar saves you tax at your top rate, which is 24% to 37% for many readers.

New catch-up rule for 2026. If you earned more than $150,000 in Social Security wages from that employer in 2025, your catch-up money must go in as Roth (you pay tax now and withdraw tax-free later). Your regular $24,500 can still be pre-tax.

Direct Roth IRA contributions may close. For 2026, the IRA limit is $7,500 ($8,600 if you're 50 or older). The amount you can put straight into a Roth IRA shrinks once your MAGI passes $153,000 (single) or $242,000 (married filing jointly). It's zero above $168,000 or $252,000.

The "backdoor Roth." Many high earners put money into a traditional IRA without taking a deduction. Then they convert it to a Roth IRA. This is legal, but if you already have pre-tax money in any traditional, SEP or SIMPLE IRA, part of the conversion becomes taxable. This is called the pro-rata rule, so check with a pro before you try it.

HSAs help too. If you have a qualifying high-deductible health plan, you can put $4,400 (self-only) or $8,750 (family) into an HSA for 2026. For 2027, those limits rise to $4,500 and $9,000. Read our HSA guide for the details.

7. Itemized deductions and giving

The SALT cap and its phase-down

SALT stands for state and local taxes, which means your state and local income tax (or sales tax) plus property tax. If you itemize, you can deduct up to $40,400 of SALT for 2026 ($20,200 if married filing separately).

But that cap shrinks once your MAGI passes $505,000. It drops by 30 cents for each dollar over the line, until it bottoms out at $10,000. (For married filing separately, the line is $252,500 and the floor is $5,000.) Under current law, the higher cap falls back to $10,000 starting in 2030.

Example: Lena and Marco live in Westchester and pay $45,000 a year in state income and property tax. Their MAGI is $555,000, or $50,000 over the line. Their cap drops by $15,000, to $25,400. If they earn about $51,000 more, it hits the $10,000 floor.

Inside that range, each extra dollar of income costs more tax than your bracket suggests, because you pay tax on the dollar and you also lose 30 cents of deduction.

The 35% limit for the top bracket

Starting in 2026, if you're in the 37% bracket, your itemized deductions save you about 35 cents per dollar at most. A $10,000 gift to charity saves you roughly $3,500, not $3,700.

Charitable giving

Also new for 2026: if you itemize, only charitable gifts above 0.5% of your AGI count. With a $400,000 AGI, the first $2,000 of gifts gives you no deduction.

That makes "bunching" more useful. Bunching means grouping two or more years of gifts into one year, so you clear the floor once. A donor-advised fund (DAF) helps with this. A DAF is an account where you give money now, take the deduction now, and send grants to charities over time.

Example: Jordan usually gives $10,000 a year. Instead, he puts $30,000 into a DAF this year and nothing for the next two years. He clears the 0.5% floor once instead of three times. His charities still get $10,000 a year.

8. Avoid an underpayment penalty

The IRS wants your tax paid during the year, not all in April. If too little is withheld, you can owe an underpayment penalty, a charge that works like interest.

You're safe from the penalty if your withholding and estimated payments (tax you send in yourself) cover at least one of these:

90% of this year's tax, or
100% of last year's tax. If last year's AGI was over $150,000, it's 110%.

For many high earners, the 110% rule is the easiest target. You already know last year's number. Big bonuses, RSUs and investment gains are the usual cause of a shortfall.

Example: Last year Mei's AGI was $310,000 and her total tax was $60,000. To be safe this year, she needs $66,000 paid in through withholding and estimates. That's 110% of $60,000. Her W-2 withholding is on track for $58,000, so she's $8,000 short. In October she files a new W-4 that adds $8,000 of withholding by year-end. Extra withholding counts as if it were paid evenly all year, so she's covered even if a big bonus raises this year's bill. (An estimated payment would count only from the day she sent it.)

For 2026, estimated payments are due April 15, June 15 and September 15, 2026, and January 15, 2027. You can pay with IRS Direct Pay or your IRS online account.

9. If you live or work in New York

New York taxes your income at the state level. If you live in New York City, you also pay city income tax. Yonkers has its own tax too. New York has no lower rate for long-term gains. It taxes them like regular income.

Moving away doesn't end New York tax by itself. New York looks at your domicile, your true permanent home. You keep a New York domicile until you clearly set up a new one somewhere else, and a new driver's license or voter card isn't enough on its own.

You can also count as a resident without a New York domicile. That happens if you keep a permanent place to live here for substantially all of the year (more than 11 months) and spend 184 or more days in the state. Any part of a day counts as a day.

Remote work can still be New York work. Under New York's "convenience of the employer" rule, if your main office is in New York, days you work from home in another state usually count as New York days. The main exception is when your employer has set up a real office at your remote location.

Example: Chris moves to Connecticut but keeps his Manhattan job and works from home three days a week. New York can still tax his full salary. Connecticut gives him a credit for the tax he pays to New York, but he can't drop New York altogether.

Common mistakes

Counting on 22% bonus withholding. If your top bracket is 24% or higher, set aside the difference.
Ignoring the two-earner Medicare gap. Two incomes under $200,000 each can still owe the 0.9% tax together.
Getting RSU basis wrong. If the vest-day value is missing from your sale records, you could pay tax twice.
Exercising ISOs without AMT math. A big exercise can bring a big AMT bill, even if you never sold the shares.
Forgetting the SALT phase-down. Income over $505,000 shrinks your deduction and raises the real cost of each extra dollar.
Buying something just for a tax break. A deduction saves a fraction of what you spend. Don't let it drive a big decision.

Frequently asked questions

Is my bonus taxed at a higher rate than my salary?

No. A bonus is added to your other income and taxed at the same brackets. What's different is the withholding. A flat 22% may be too little, so you owe the rest when you file.

Do I owe NIIT on my salary?

No. Wages don't count as investment income. But wages can push your MAGI over the line, which makes your investment income subject to the 3.8% tax.

Can I still save in a Roth if I earn too much for a Roth IRA?

Yes. A Roth 401(k) has no income limit. Many high earners also use the backdoor Roth. Check the pro-rata catch first if you hold other pre-tax IRA money.

Should I itemize or take the standard deduction?

Take whichever is bigger. For 2026 the standard deduction is $16,100 (single) or $32,200 (married filing jointly). With the higher SALT cap, many New York homeowners now come out ahead by itemizing.

When should I hire a tax pro?

Consider one before you exercise ISOs, sell a large stock position, move states, or start a business on the side. The fee is often small next to the mistakes a good pro helps you avoid. Our tax planning vs. preparation guide explains what to ask for.

The bottom line

High income adds layers: two surtaxes, bonus and RSU withholding gaps, account limits and a SALT phase-down. None of it is random. Check your withholding against the 110% safe harbor, max out the accounts that still fit, and run the numbers before any big sale, exercise or move.

Related reading: Capital gains taxes · Roth vs. traditional 401(k)

Authoritative sources

Convivial Wealth education guide · General education for U.S. readers, not personalized tax, legal or investment advice. Figures are for 2026 and are reviewed each year.

Read our full educational disclaimer.