Why an annual salary of $300,000 is the 'new' $100,000

The high cost of living and taxes in Honolulu, New York and San Francisco mean workers need to earn much more to bring home a six-figure income

Commuters in the Oculus station and mall in Manhattan. New York City residents need to earn at least $312,000 to get the purchasing power of $100,000, according to new research. AFP
Powered by automated translation

Employees working in expensive US cities such as Honolulu, New York and San Francisco need an annual salary of more than $300,000 to bring home $100,000 after paying taxes and adjusting for the higher cost of living, a study by US-based personal financial adviser SmartAsset found.

Workers in these three cities who earn $300,000 a year are taxed at a rate of 40.5 per cent or higher, while the cost of living is up to 86 per cent above the national average.

This means that employees would have to earn more than $300,000 to bring home the “new” $100,000, according to SmartAsset’s analysis of annual salaries in 76 US cities.

The company adjusted the annual salaries for taxes and cost of living to determine the yearly income it takes to feel like $100,000 across the US.

“Six-figure salaries have long been seen as a milestone for gauging success. But when accounting for taxes and cost of living in America’s largest cities, those six figures will feel much smaller,” Anja Solum, a data journalist at SmartAsset, said.

“Ultimately, to have the purchasing power of $100,000, you will have to earn a substantially higher salary.”

Global economic uncertainty — compounded by the Russia-Ukraine war, a supply-chain crunch and the rising cost of living — caused inflation to jump to record levels.

In the US, the world’s largest economy, inflation reached a 40-year high of 9.1 per cent in June last year.

Since March last year, the US Federal Reserve has increased its benchmark rates nine times to bring inflation down to a target of 2 per cent.

Last month, inflation fell to 5 per cent on an annual basis, US government data showed.

Inflation and economic uncertainty remain the top concerns for most US consumers in 2023, a January survey by data news website PYMNTS and LendingClub found.

Fifty-one per cent of respondents to the survey who earn more than $100,000 reported living from paycheque to paycheque in December 2022, it added.

“Living paycheque to paycheque has become a reality for growing numbers of US consumers, including those at the highest income levels,” it said.

To take home $100,000 in Honolulu, Hawaii, workers need to earn at least $312,400 pre-tax, SmartAsset said.

The cost of living in Honolulu is 86 per cent above the national average, the research found.

Living costs in Honolulu are affected in part by the reliance on imports for energy, goods and services, it added.

New York City residents need to earn at least $312,000 to get the six-figure feeling, the data found.

“The nation’s most populous city requires a lot of resources to maintain and upgrade its infrastructure and meet the demands of roughly 8.5 million residents and 61 million projected tourists for 2023,” the research said.

To take home $100,000 in New York City, this translates to about 41 per cent in combined federal, state and local taxes and a cost of living that is 83.6 per cent higher than the national average.

Similarly, workers in San Francisco need to earn slightly more than $300,000 pre-tax to take home $100,000.

With a median household income that is nearly double the national average, living in San Francisco costs a disproportionate 82.8 per cent more than the national average — partly because of the city’s close ties to tech entrepreneurship in Silicon Valley, according to SmartAsset.

Meanwhile, workers in Memphis, Tennessee, need the lowest pre-tax annual salary to bring home a six-figure equivalent: $117,100.

The low cost of living in Memphis — 13.8 per cent below the national average — plays a big part in this, as does the lack of state income tax. Memphis homes also cost less than half the average price across the US, the data revealed.

A six-figure paycheque is also much easier to achieve in Texas, according to SmartAsset’s analysis, as the cost of living in many of its cities is lower than the national average and residents don’t pay a state income tax.

An income of $119,300 will net workers in El Paso $100,000 after taxes and cost adjustments.

“Although taxes account for roughly 26.5 per cent of that gross amount, with El Paso’s low cost of living [12.3 per cent below the national average], the purchasing power of the $87,700 post-tax amount will be $100,000,” SmartAsset said.

Similarly, residents of Oklahoma City need to earn a gross income of $120,300 to bring home $100,000 after tax deductions.

While the combined federal, state and local taxes deduct roughly 30 per cent from a worker's salary in Oklahoma City, the below average cost of living helps to compensate this, according to the analysis.

Updated: April 19, 2023, 3:30 AM