If you’re earning $1 million a year, you’re probably not bringing home those big bucks from a paycheck that hits your bank account every other Friday. Your tax bill probably looks a lot different from a typical W-2 worker’s too.

Million-dollar earners tend to have multiple streams of income that often receive more favorable tax treatment than regular wages. Think long-term capital gains, businesses and partnerships, real estate, and equity compensation. People who make seven figures often have a lot more deductions than the rest of us, which can lower their taxable income further in the eyes of the Internal Revenue Service.

In this article, we’ll break down what taxes look like on a $1 million salary, plus some legal ways millionaires often lower their tax bills. We’ll also cover a few strategies wealthy people use that can help us regular folks save money on taxes without running afoul of the IRS.

Read more: 7 tax-planning strategies to save you money

If you earn $1 million, you’re in the 37% tax bracket. Surely, your accountant told you that, though. But for all the aspiring millionaires out there, here’s how you’d calculate income taxes on a $1 million salary.

No matter how big your paycheck is, your taxable income is almost always less than what you earn. That’s because certain adjustments, like 401(k) and health savings account (HSA) contributions, lower your income. You then subtract either the standard deduction or itemized deductions to arrive at your taxable income.

For this hypothetical tax bill, we’ll keep things pretty simple and assume that:

• You earned $1 million from a W-2 job in 2025 with no other income sources.

• Your tax filing status is single.

• You maxed out 401(k) contributions and HSA contributions (both made pretax), and you were younger than 50 at the end of 2025.

• You were among the 9% of taxpayers who itemized vs. taking the standard deduction, and you had $100,000 worth of deductions.

Box 1 of your W-2 wouldn’t list $1,000,000 as your taxable wages. Your 401(k) and HSA contributions of $23,500 and $4,300, respectively, have already been deducted, bringing your total to $972,200.

Then, you’d subtract your $100,000 in deductions, bringing your taxable income to $872,200.

Read more: Standard deduction vs. itemized: How to decide which tax filing option is right

If you make $1 million, you’re in the 37% tax bracket. But regardless of your income, your tax bracket is almost always higher than your overall tax rate because different levels of income are taxed at different rates that gradually increase as you earn more.

Tax brackets break down as follows for 2025; you can use these numbers to prepare your taxes that are due April 15, 2026. Hoping your boss will be extra generous at raise time this year? Use the 2026 tax rates to calculate what you’ll owe next year on your $1 million paycheck.

Read more: How much income tax would you pay on a $100,000 salary?

Add up the total from each tax bracket to get your total: You’d pay $279,734.25 in federal income taxes on a $1 million salary. That’s an effective tax rate of just under 28%.

Read more: Marginal vs. effective tax rate: What’s the difference?

Most traditionally employed people pay the first 7.65% of their income toward Social Security and Medicare taxes, and their employer matches that 7.65%. But things work differently with a seven-figure paycheck.

You pay Social Security taxes on 6.2% of earnings, but only up to the Social Security wage cap. This amount was $176,100 in 2025 and increased to $184,500 in 2026.

Any amount you earn above the wage cap threshold isn’t subject to Social Security taxes. So for 2025, you’d only owe $10,918.20 ($176,100 x 0.062) on a million-dollar paycheck.

But you’d pay more than the standard 1.45% for Medicare taxes. Earnings above $200,000 (for most single taxpayers) or $250,000 (for married joint filers) are subject to an additional 0.9% in Medicare taxes. So you’d owe 1.45% of your entire $1,000,000 ($14,500), plus an extra 0.9% on $800,000 of earnings ($7,200), or $21,700 total.

The total tax bill for Social Security and Medicare if you made $1 million in 2025: $32,618.20. But you’d still have to give the IRS its cut, because employees don’t get a deduction for payroll taxes.

What about state and local taxes?

Some high-tax states, like California, New York, and Hawaii, have top rates above 10%, but most states have lower rates — and nine states have no income tax whatsoever.

We won’t try to calculate state and local taxes on a millionaire’s paycheck because these amounts vary so widely. But if you want to borrow a move out of the millionaire playbook, you could take up residence in one of the nine states with no income tax, like Florida or Texas.

Read more: What to know about the new (higher) SALT deduction

Let’s go over some clever (but legal) strategies millionaires use to pay lower taxes:

Federal income tax rates range from 10% to 37%. But wealthy people prefer the lower long-term capital gains rates of 0%, 15%, or 20% you get when you sell an investment you’ve held for over a year.

Some people earning $1 million or more don’t have much W-2 income, especially if they own a business. Depending on how the business is structured, they may pay themselves a modest salary while building most of their wealth through ownership in the business. If they sell their stake after more than a year, they can pay long-term capital gains rates instead of ordinary income taxes.

Many seven-figure earners pay less to the IRS by deferring as much income as possible. Some tools for doing so, like pretax retirement accounts and HSAs, are available to many average earners.

But the rich have other ways of deferring income that aren’t available to most people. For example, some executives receive nonqualified deferred compensation plans that allow them to delay some income (and taxes) until retirement.

They can often use strategies like delaying business income or equity compensation for favorable tax treatment. Or they may take advantage of 1031 like-kind exchanges, which allow real estate investors to defer capital gains taxes when they sell an investment property and buy a similar “replacement” property.

Maximizing credits and deductions

Itemizing deductions doesn’t make sense for most taxpayers, given that the standard deduction is relatively high — $15,750 for single filers and $31,500 for married joint filers (2025) and $16,100 for single filers and $32,200 for married joint filers (2026).

But people earning $1 million often have lots of deductible personal expenses that tip the scales in favor of itemizing, like mortgage interest, charitable contributions, and property taxes, plus various business deductions. They may also qualify for various tax credits that can offset their liability even more.

Read more: Tax credit vs. deduction: Which is better?

When rich people need cash, they often avoid selling assets because doing so would result in capital gains taxes. Instead, they use a strategy called “buy, borrow, die”: They buy assets that appreciate dramatically in value, then borrow against their value, allowing them to access tax-free funds.

Upon death, the wealthy frequently pass these assets on to heirs. If the person who inherits the asset keeps it, they don’t owe taxes. But if they sell it, they only owe taxes on any appreciation that occurred after the person’s death. Essentially, if you bought a house for $200,000 that was worth $2 million when you died, your heir wouldn’t pay taxes on the inheritance. But if they sold it for $2.1 million, they’d only owe capital gains taxes on the $100,000 appreciation that occurred since the date of your death.

Read more: Death and taxes: Yes, you owe the year you die

Earning $1 million puts you well above the Roth IRA contribution limits, but backdoor Roth IRAs offer a sneaky way to skirt the rules. Essentially, they fund a traditional IRA, then immediately convert it to a Roth IRA after paying taxes on the converted amount.

Millionaires and billionaires love this strategy for their investments with the highest growth potential because Roth IRAs allow for tax-free distributions. PayPal founder and billionaire Peter Thiel reportedly used this strategy to turn $2,000 into a $5 billion tax-free nest egg by investing his Roth IRA in early-stage startups.

Read more: Are IRA contributions tax-deductible? Here are the rules

Most people who have a regular W-2 job and don’t own high-value assets don’t have a ton of wiggle room for creative tax-saving strategies. But there are still a few ways you can save on taxes like a millionaire.

That money won’t count toward your taxable income for the year, and it grows tax-deferred (you’re taxed on withdrawals later). You can defer income by contributing to pre-tax accounts, like traditional 401(k)s and IRAs, along with health savings accounts (HSAs). Though with an HSA, you’ll never be taxed on distributions if you use the funds for health expenses. It’s OK if you can’t afford to max out retirement accounts and HSAs like a millionaire. Contributing whatever you can afford will still yield tax savings.

Although funding a Roth IRA or Roth 401(k) won’t shave money off this year’s tax bill, it offers tax-exempt income in retirement. So instead of going full throttle on pretax accounts, you may want to put some of that money into Roth accounts.

Unlike Peter Thiel, you probably don’t have access to billionaire-maker investments like early-stage startups. But you can still accumulate a significant tax-free nest egg, especially if you’re younger and your money has lots of time to compound.

Anyone can lock in long-term capital gains rates by holding assets for longer than a year, and the average taxpayer only pays long-term capital gains rates of 15%.

Take advantage of tax credits and deductions

Most people don’t have enough deductions to justify itemizing, but you can still use tax credits and deductions to reduce your tax bill. You may qualify for tax credits like the Child Tax Credit and Earned Income Tax Credit (EITC), which are off-limits to people earning million-dollar paychecks.

You may also qualify for above-the-line deductions that don’t require you to itemize, like the student loan interest deduction, car loan interest deduction, and deductions for tips and some overtime wages.

Learn more: 4 ways the One Big Beautiful Bill Act could lower your taxes

 If you’re a freelancer or independent contractor, you may be able to take some of the same business deductions that $1 million earners use to pay lower taxes. For example, you may qualify for the home office deduction if you use part of your home exclusively for business or the qualified business income (QBI) deduction, which allows some people who are self-employed or own a small business to deduct up to 20% of their business income.

Read more: Where’s my tax refund? 4 reasons your tax refund might be delayed

Millionaires typically pay less tax because they can often take advantage of lower long-term capital gains rates, borrow against the value of high-value assets to raise cash, and defer significant amounts of income. They also tend to have more deductible expenses than the average taxpayer.

Someone earning a millionaire salary could expect to pay about $280,000 in federal income taxes and over $32,000 in payroll taxes, plus any applicable state and local taxes. Keep in mind, though, that many millionaires aren’t earning most of their income from salaried jobs, so lower tax rates often apply.

Someone with a $1 million salary is in the 37% tax bracket. But their effective tax rate (the average tax rate you pay on all your income) is usually lower, because lower levels of income are taxed at lower rates.