Arik Armstead of the San Francisco 49ers on the NFC Championship recreation towards the Philadelphia Eagles on Jan. 29, 2023.
Kevin Sabitus | Getty Images Sport | Getty Images
1. Know the place your {dollars} are going
In the period of direct deposit and digital data, it is simple to let months go with out reviewing your pay stubs. But specialists say it is vital to know the place every greenback goes.
Like different W-2 workers’ pay stubs, Armstead’s features a breakdown of gross and internet earnings for one pay interval — practically $400,000 in comparison with roughly $200,000 — together with a abstract of earnings to this point.
You can additionally see an itemized listing of taxes, together with Medicare, Social Security, federal, state and native tax withholdings, and different payroll deductions, which convey Armstead’s internet take-home pay down considerably.
“This is what everybody else’s paycheck appears like with a lot greater numbers,” mentioned Albert Campo, an authorized public accountant and president of AJC Accounting Services in Manalapan, New Jersey.
2. Monitor your withholdings
With these gross earnings of greater than $4 million to this point, Armstead shortly hit the highest earnings tax brackets for each federal and California state taxes, mentioned Tommy Lucas, an authorized monetary planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
For 2023, the highest federal earnings tax charge is 37% and the very best charge in California is 12.3%, with a further surcharge of 1% for earnings of greater than $1 million. “The extra you make, the extra you pay,” Lucas added.
Of course, working primarily in California, Armstead owes significantly greater than an athlete residing in income-tax-free states like Florida or Texas.
Like different W-2 employees, Armstead’s withholdings have been his resolution, elected through Form W-4, in line with CFP and enrolled agent John Loyd, proprietor at The Wealth Planner in Fort Worth, Texas.
While it is attainable to withhold lower than you’ll owe, you may threat underpayment penalties on high of a large earnings tax invoice in April. “It’s tremendous vital for everybody to concentrate” when filling out Form W-4 and all year long, he mentioned.
You can use the (*3*) to ensure you’re on observe with withholdings and make changes via your HR division as obligatory.
3. Max out your 401(okay) to save lots of on taxes
In addition to important tax withholdings, Armstead additionally maxed out his office retirement plan for 2023.
There are restricted methods to reduce your taxes as a W-2 employee. But you can cut back your adjusted gross earnings with pre-tax 401(k) contributions, specialists say.
If you’re below age 50, you can defer as much as $22,500 in 2023 and $23,000 in 2024. Savers age 50 and older can funnel an additional $7,500 into their accounts.
In 2022, solely 15% of Americans maxed out 401(okay) contributions, in line with Vanguard, and Armstead is amongst these savers for 2023, his pay stub exhibits.