Tax Sense: How Much Would Taxes Be on $1 Million?
The amount of tax an individual should pay on $1 million is determined by various factors including the source of the money, the state where the individual lives and the personдуЅн_М”s filing status notes SmartAsset.
Assumptions It is impossible to determine the exact amount that an individual will pay as taxes on $1 million without knowing other details of the personдуЅн_М”s finances. However, it is possible to get an estimate. A few assumptions will be made to come up with a rough estimate of the amount of tax an individual would pay on $1 million. The first assumption is that the $1 million is the personдуЅн_М”s salary from his or her regular job and that it is the only income. Other assumptions include that the individual is single, has no dependents and no adjustments to his income, he or she will take the standard tax deductions and will not claim tax credits. The person is just another taxpayer punching the clock for about $500 an hour.
Social Security and Medicare Because the money is from work, the person will have to pay Social Security and Medicare taxes on it. According to the IRS, the Social Security tax rate for all wages up to $118,500 was 6.2 percent as of 2015. That translates to $7,347. In addition, standard Medicare tax rate as of 2015 was 1.45 percent of all wages. For $1 million, that translates to $14,500. In addition, wages above $200,000 are subject to an additional Medicare of 0.9 percent, which should be paid on $800,000 worth of the income. This translates to $7,200. Therefore, the total tax to be paid for Social Security and Medicare is $29,047.
Federal Income Tax The standard taxes for federal taxes as of 2015 were $6,300, notes the IRS. This means that the taxable income of the individual will drop from $1 million to $993,700. It also means that the person will not be eligible for a personal exemption because the income is too high. According to Tax Foundation, there are seven marginal rates for federal income tax as of 2015 including 15 percent, 25 percent, 28 percent, 33 percent and 39.6 percent. Different portions of the $1 million will be taxed at varying rates. For example, the first portion of the personдуЅн_М”s income will be taxed at 10 percent, the next $28,225 taxed at 15 percent and so on until income above $413,200 is taxed at 39.6 percent. Therefore, the federal income tax on $993,700 will be $349,953.45.
State and Local Taxes There are significant variables between state and local income taxes because states earn revenue in different ways. Some states rely more on income taxes while others rely on other taxes. There are nine states in the United States that do not tax earned income altogether, notes Bankrate. Although some states charge more taxes, 6 percent is the typical top rate for state income tax. Using that rate, 6 percent of $1 million is $60,000.
Putting It All Together Adding the numbers, the total tax to be paid for $1 million is $439,000.45. Remember, the individual will have to pay this tax if he or she is single, does not have dependents, has wage income only and does not have deductions. Married couples with same income filing joint returns will pay less because of lower taxes on capital gains and no Social Security taxes to pay. In addition, married couples filing joint returns will pay significantly less for Medicare.