Where Does Your Salary Go?
If you earn $100,000 a year, you do not take home $100,000. Depending on your state, you may only see $70,000 to $75,000 of that money hit your bank account. The gap between your gross salary and your net take-home pay is primarily consumed by three taxes.
Federal Income Tax
The US Federal government uses a progressive, marginal tax bracket system. You are not taxed at a single flat rate. Everyone gets a "Standard Deduction" (money that is not taxed at all). After that, your first chunk of income is taxed at 10%, the next chunk at 12%, the next at 22%, and so on. Getting a raise that bumps you into a higher tax bracket is always a good thing—only the new dollars are taxed at the higher rate, your old dollars keep their lower rates.
FICA (Social Security & Medicare)
FICA is a flat payroll tax that applies to the first dollar you earn. You pay 6.2% of your salary to Social Security (up to a wage cap) and 1.45% to Medicare (with no cap). Your employer actually pays a matching 7.65% behind the scenes. If you are self-employed (a 1099 contractor), you have to pay both the employee and employer halves, meaning you owe the full 15.3% self-employment tax.
State Income Tax
State taxes vary wildly. Nine states (including Texas, Florida, and Nevada) charge zero state income tax. Others, like California and New York, have aggressive progressive brackets that can take over 10% of your paycheck if you are a high earner.