Welcome back to dumb rich. Happy February. We made it. *insert reference to how long January was here.* Happy Black History Month and happy almost Valentine’s Day! As a biracial gal writing about money, it feels fitting that Ashley Banks is the ultimate vibe this month.
I was in Miami over the weekend meeting with clients, visiting friends and “relaxing”. Literally impossible to relax in Miami. In case I haven’t mentioned it, I live in NYC. It’s an entire personality trait — you’ll get used to it. While I was in Miami, I had conversations about money and the wealth that has moved into the area in recent years. Many areas are just as expensive as NYC. Miami will forever remain an enigma to me. Lots of money being thrown around, but on much smaller articles of clothing. The main takeaway about money? The 0% income tax is made up for in high property taxes. Oh and the $30 beach chicken fingers are worth every penny.
In other exciting news, I think it’s time to introduce the segments you’ll see here and then we can get right into it…
dumb rich academy - Here is where we’ll get actually into the nitty-gritty. I’ll try not to assign homework. Today’s lesson is Intro to Taxes 101 (ugh, this sounds so serious, but that’s the point lol). You can write into our hotline chat to submit questions!
shit I want to buy - Clearly, I am still workshopping this name. Feel free to send your suggestions, but we’ll keep this for now. Felt right to at least tell you fun ways to spend your tax refund ahead of the Taxes 101 lesson.
dumb rich irl - This is where we gossip about what's going on in the real world and how it all ties back to money.
shit I want to buy
Miami had some great shopping last week. I came across these shoes which I clearly have mixed emotions about. They have the price tag of an investment piece, but not the staying power of an investment piece. I really do think the cost per wear would be low and they’d become a short term hyper fixation. I’ll add it to the ongoing list in my notes app for the time being. Truly nothing like your friends to keep you humble…
Lots of bright colors and patterns were a big vibe in Miami last week. I definitely leaned in. Everyone was also VERY into exercising. It reminded me of the Bala x Pucci workout accessories. Please note, I don’t really exercise, so I likely will not be purchasing. But would they encourage me to exercise??? The campaign is quite convincing.
Lastly, I wouldn’t be a basic bitch without wanting the new Rhode Lip Shapes. I just have a couple of issues with these. First, they aren’t sold out. What does this say about me? I’m not totally sure. But, I feel like I need to be met with a sense of urgency to purchase. Second, all of the colors look exactly the same. If anyone has tried, please let me know your favorites. I may actually be purchasing.
dumb rich academy:
Introduction to Taxes 101: Don’t Fear Your Paystub — Just Brace for Impact
In a shocking turn of events, you do not get to take home your entire paycheck — you already knew this. Let’s break down all of the taxes you pay just simply for working, and then discuss why sometimes you receive a refund and other times you owe money *cue depression spiral*. Please note, these examples are under the assumption that you are employed. In this case, your company’s payroll processing center will withhold these taxes and send them to the proper government agencies on your behalf. We’ll cover the self-employed tax implications at a later date, perhaps in Taxes 201.
1. FICA Taxes - these are the taxes that fund Social Security and Medicare. You’re supposed to care about your future self, even though your current self is just trying to pay rent. The good news? If you are employed, your employer pays half of this and you (the employee) pay the other half. The employee half is 6.2% for Social Security on wages up to $176,100. After that threshold, you stop paying Social Security tax (yay!). The employee portion of the Medicare tax is 1.45% on all wages and an additional (0.9%) on wages over $200,000. Please note, if you are self employed, you are responsible for paying both halves (also known as Self Employment Tax). In the meantime, example of a traditional employee FICA Tax below:
2. Federal Income tax - I can’t exactly say what government programs this money funds… please don’t ask me. These rates are based on your income, and range from 10% to 37%. The most common misconception that I debunk is the mystery of the graduated tax rate. So many people tell me that they don’t want to earn more money because they don’t want all of their income to be taxed at a higher rate. The great news is that it doesn’t work that way! It’s a blended rate, so only the incremental difference is taxed at a higher rate. You can kind of think of it as buckets. You fill up a certain bucket at a tax rate, and then the remaining moves into the next bucket, which creates a blended rate. The highest rate you’re taxed at is called your marginal tax rate, while the blend of the taxes you pay is averaged and called your effective tax rate. These taxes are withheld on your behalf by your employer, but if you are self-employed, you’re responsible for paying in quarterly estimates. Again, something we’ll cover in the 201 course. We can use the same two salary examples:
3. State & Local Taxes - These vary based on where you live and work and are typically also income based graduated rates but substantially less than federal. I’ll spare you the calculations.
So now you ask - if we can so precisely calculate the taxes, why doesn’t my employer withhold these exact amounts so I don’t owe anything or receive a refund? Great question! Basically, they don’t have your full tax picture — only the information on your salary. They don’t know about your deductions, side hustle income, etc. They make an educated guess (hey, we all do it) with what they think you would owe and submit that to the IRS on your behalf. When you file your tax return, your tax is calculated using the rates above. Then, the difference is either your refund or balance due.
dumb rich irl
A LOT going on in the money real world. This previous lesson was a lot to get through, so we’ll stick with something light. I mentioned “get rich quick” in my opener. While I generally think those are scams, there is something that will get you a lot of money fast and that is selling your iPhone with the TikTok app downloaded. Here is one selling for $18.5k. I have TWO friends that got new iPhones recently and lost TikTok (RIP). They literally kept their old phones as burners to scroll. Needless to say, I will not be selling mine.
Let me know what you want more of in the comments pls! More gossip? More technical segments? More ways to be fiscally irresponsible???
Reconsidering getting a new phone now thanks to this advice 🥲
So much great information! I learned so much, can’t wait for next week lesson!