2014 U.S./California Income Tax

In 2014, the highest income tax rate is 51.7% (Federal tax rate: 44.3%, California tax rate: 13.3%). The 51.7% tax rate applies to wage earners.

For investors the top rate on net investment income is 50.92% (Federal tax rate: 43.4%, California tax rate: 13.3%).

The top tax rates apply to U.S. taxpayers who earn income over certain levels, see below. These top tax rates apply to international investors who are classified as U.S. tax residents under either the “Green Card Test” or the “Substantial Presence Test”.

2014 Income Taxes (U.S./California)

California Income Tax
Income over $250,000 is taxed at 12.3%. Income over $1m is taxed at 13.3% (additional 1% mental health tax). These tax rates apply through 2018.

2014 Highest California Tax Rate: 13.3%
U.S. Income Tax (2014): Income/Medicare Tax

1. Income Tax
Individuals (over $406,750); Marrieds (over $457,000) Tax: 39.6%

2. Medicare Surtax

Net Investment Income

Individuals/Heads of Household

(Modified Adjusted Gross Income (“AGI”) over $200,000)

Married Taxpayers (over $250,000)

Married filing separately (over $125,000) Tax: 3.8%

The 3.8% Medicare surtax on net investment income is levied on the lesser of:
1. Taxpayer’s net investment income; or
2. The excess of modified adjusted gross income over the applicable dollar threshold (modified AGI is AGI plus any tax-free foreign earned income).

Investment income includes: interest, dividends, capital gains, annuities, royalties and passive rental income. Tax-free interest is exempted, along with pay-outs from retirement plans such as 401(k)s, IRAs, deferred pay plans and pension plans.

Earned Income
(Wages and Self-Employment Income)

Individuals/Heads of Household

(Total Earnings over $200,000)

Married Couples

Joint Returns/Earnings over $250,000

Filing Separately/Earnings over $125,000; Tax: 0.9%

This surtax applies only to the employee’s share of Medicare tax. Employers don’t owe it. Employers will withhold the surtax once an employee’s wages exceed $200,000. Employees will then calculate the actual tax due on their Form 1040 tax returns.

2014 Highest U.S. Tax Rate (44.3%)

(Includes Medicare Surtaxes on Net Investment Income and Earned Income)

Summary 2014/Combined U.S./California Tax (Top Rates: 57.6%)

“Blended” U.S./California Tax (Top Rates: 51.7%)

For taxpayers (individual) who have income over $406,750, including net investment income over $200,000 (modified adjusted gross income), and earned income over $200,000 (wages and self-employment income), the combined top tax rate is 57.6%, the “blended” top tax rate is 51.7%.

For investors (who do not have wages and self-employment income) the combined top tax rate is 56.7%; the “blended” top tax rate is 50.92%.

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