What works on a W-2
- 401(k), 403(b) or TSP. Pre-tax deferrals lower taxable wages now. Roth deferrals give up the deduction for tax-free qualified withdrawals later. The deferral limit is per person across all employer plans. See IRS Publication 560 and the IRS limits page for the current year.
- Backdoor Roth. Direct Roth IRA contributions phase out at higher incomes, but conversions have no income limit. You contribute to a nondeductible traditional IRA and convert. Form 8606 applies a pro-rata rule using all traditional, SEP and SIMPLE IRA balances on December 31. Rolling pre-tax IRA money into a 401(k) or TSP first, where the plan allows it, can keep the conversion mostly tax-free.
- HSA. Contributions are deductible or pre-tax, growth is tax-free, and qualified medical withdrawals are tax-free. You need an HSA-eligible plan. Starting January 1, 2026, the IRS treats bronze and catastrophic plans as HSA-compatible.
- Charitable bunching and donor-advised funds. Starting in 2026, itemized charitable gifts count only above 0.5% of AGI, and the overall value of itemized deductions is reduced for the top bracket. Grouping several years of gifts into one year through a donor-advised fund can help you clear the standard deduction. Gifts to donor-advised funds do not count toward the new non-itemizer deduction.
- Withholding vs estimates. Bonuses, RSUs and two-earner households are often under-withheld. See the safe harbor rules in the FAQ and our quarterly tax planning guide.
The 2026 rules that hit high earners
- SALT cap. Per IRS Publication 505, the 2026 limit is $40,400 ($20,200 MFS), reduced when modified AGI exceeds $505,000 ($252,500 MFS), but not below $10,000 ($5,000 MFS). In DC, Maryland and Virginia, income and property taxes often exceed the floor, so the phase-down range matters.
- Net investment income tax (3.8%). Applies to the lesser of net investment income or modified AGI over $250,000 MFJ, $125,000 MFS, or $200,000 single and head of household. IRS Topic 559.
- Additional Medicare Tax (0.9%). Applies to wages and self-employment income over $250,000 MFJ, $125,000 MFS or $200,000 for others. Employers withhold only on wages over $200,000 per employee. IRS Topic 560.
- Itemized deduction limit. For 2026, itemized deductions are reduced for taxpayers whose taxable income reaches the top bracket. Pub 505 lists the thresholds.
What needs a business, rental or real estate
Larger deductions usually come from owning something: a side business with its own retirement plan, a short-term rental that meets the material participation rules, or real estate professional status for a spouse. Each has real requirements. See the short-term rental loophole for the rules and limits.
Business owners in DC, Maryland and Virginia may also benefit from a pass-through entity tax election. See Virginia PTET and Maryland PTE tax.
Red flags. Be wary of promoters selling schemes that promise large write-offs for little real activity. The IRS warns about these each year in its Dirty Dozen list. If it sounds too easy, ask a CPA first.
Federal employees and DMV households
Federal employees can use Roth or traditional TSP, FEHB high-deductible plans with an HSA, and need to plan around buyouts and retirement timing. See federal employee tax services and VSIP and buyout taxes.
Where you live and work also matters. Maryland adds a county income tax. DC, Maryland and Virginia have their own rules for residents who work across the line. See live in Virginia or Maryland, work in DC.
How it works with us
Best for: high-income W-2 earners, federal employees, physicians, attorneys, consultants and dual-income households who want a plan, not just a return.
- Free initial consultation. Share last year’s return, current pay stubs and what is changing this year.
- Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter.
- Projection. We project federal and state tax and identify the levers that fit.
- Action list. Contribution, conversion, giving and withholding steps with dates.
- Check-ins and filing. Quarterly or year-end reviews, then we prepare your returns.
For business owners, see our broader tax planning service.
High-income tax strategies at a glance
| Strategy | Who it fits | Key rule or limit | Source |
|---|---|---|---|
| 401(k), 403(b) or TSP deferrals | Any W-2 earner with a workplace plan | One deferral limit per person across all plans | IRS Pub 560; IRC §402(g) |
| Backdoor Roth | Income above Roth IRA limits, little or no pre-tax IRA money | Pro-rata rule on Form 8606 using Dec. 31 IRA balances | IRS Pub 590-A; Form 8606 instructions |
| HSA | Covered by an HSA-eligible plan | Bronze and catastrophic plans HSA-compatible from Jan. 1, 2026 | IRS Pub 969; IRS Notice 2026-5 |
| Charitable bunching / donor-advised fund | Regular givers near the standard deduction | 2026: itemized gifts count only above 0.5% of AGI | IRS Pub 505 (2026) |
| Withholding and estimates | Bonus, RSU, two-earner or side-income households | 110% of prior-year tax safe harbor if prior AGI over $150,000 | IRS Pub 505 |
| SALT planning | High state income or property taxes | 2026 cap $40,400, phase-down above $505,000 MAGI | IRS Pub 505; Schedule A instructions |
| Business, rental or PTET | Owners, landlords, short-term rental owners | Material participation, basis and state election rules apply | IRC §469; state PTET law |
Expert CPAs. Personal attention.
High income and tired of surprises at filing time? Request a free initial consultation and we'll project your tax and the levers that fit.
Frequently asked questions
The levers that work for most W-2 earners are maxing pre-tax or Roth contributions to your 401(k) or TSP, a backdoor Roth if you have no pre-tax IRA balances, an HSA if you have an eligible health plan, bunching charitable gifts through a donor-advised fund, and getting withholding right. Bigger deductions usually need a business, a rental or real estate activity.
Roth conversions have no income limit. A backdoor Roth is a nondeductible traditional IRA contribution followed by a conversion. The catch is the pro-rata rule: Form 8606 counts all your traditional, SEP and SIMPLE IRA balances on December 31, so existing pre-tax IRA money makes part of the conversion taxable. Employer 401(k) and TSP balances are not counted.
Per IRS Publication 505, the 2026 limit on state and local tax deductions is $40,400 ($20,200 married filing separately). It is reduced when modified AGI exceeds $505,000 ($252,500 MFS), but not below $10,000 ($5,000 MFS). For 2025 the limit was $40,000 with a $500,000 threshold.
The NIIT is 3.8% of the lesser of your net investment income or the amount your modified AGI exceeds $250,000 married filing jointly, $125,000 married filing separately, or $200,000 for single and head of household filers. It is figured on Form 8960. Wages are not net investment income.
The 0.9% Additional Medicare Tax applies to wages and self-employment income above $250,000 married filing jointly, $125,000 married filing separately or $200,000 for others. Employers withhold only on your own wages over $200,000. Two earners under that each can still owe it on a joint return. It is reconciled on Form 8959.
Often not, if withholding covers enough. You avoid the underpayment penalty by paying at least 90% of this year’s tax or 100% of last year’s, or 110% if last year’s AGI was over $150,000 ($75,000 MFS). Extra withholding late in the year is treated as paid evenly, which can fix a shortfall.
Yes. Federal employees have TSP choices, FEHB health plan options, buyout and retirement decisions, and often a spouse with other income. We plan around those, along with DC, Maryland or Virginia filing rules.
Sources
- IRS Publication 505 (2026), Tax Withholding and Estimated Tax
- IRS Topic No. 559, Net Investment Income Tax
- IRS Topic No. 560, Additional Medicare Tax
- Instructions for Schedule A (Form 1040)
- Instructions for Form 8606, Nondeductible IRAs
- IRS Publication 969, Health Savings Accounts
- IRS: Working Families Tax Cuts (2025 law provisions)
General information as of October 10, 2026. Tax rules change; talk to a CPA about your situation.