NOTE: This only applies to FTEs working for Microsoft Corporation in the United States. None of this advice applies to FTEs working in Canada or another country.

Be aware of how you need to pay taxes on your income, and ways to make taxes adapt better to your situation.

This guide also goes over how to make better financial choices, including making sure you don't get too much money withheld from your paycheck, as well as legal ways of reducing your state income tax liability.

This is not professional tax advice. Do not hold the writers of this guide liable for any legal issues. If you have further questions please contact a CPA.

Income taxes

Federal income tax

All FTEs will need to pay federal income taxes. There are three taxes levied on your income; income, Social Security, and Medicare:

• Income tax: variable, depends on your income, but around 20-25% for most new grad FTEs
• FICA taxes: 15.3% (7.65% withheld from your paycheck, 7.65% to be paid by you in tax returns)
  • OASDI (Social Security) tax: 12.4% (6.2% withheld, 6.2% to be paid by you)
  • Medicare tax: 2.9% (1.45% withheld, 1.45% to be paid by you)

A certain portion of your taxes are withheld automatically from your paycheck.

• Half of your FICA taxes are withheld, and you pay the other half in your tax returns. You cannot change this.
• The amount of income tax withheld from your paycheck varies by how you file your W-4. You can change the amount so you get less money withheld (= more money in your pockets faster). Withheld money doesn't get "stolen" from you; it's taken into account when you file your tax return and may be refunded to you in a tax refund. However, the "withheld" money is essentially you giving an interest-free loan to the IRS. That's why being deliberate about your W-4 can help you reduce the amount of income tax withheld. Though, do be cautious; you do have to pay interest.

State income taxes

Additionally, you may be liable for state income tax from one or more states, depending on which state(s) you work from and reside in.

State income tax jurisdiction derives from two factors: where you work out of and where you live.

Where you work out of: Almost all employees will be working out of Microsoft's Redmond campus, but thankfully there is no state income tax in Washington State. Employees working in other locations such as Sunnyvale, CA; Fargo, ND; and Raleigh, NC will be subject to income taxes in their states.

Where you reside: FTEs living 100% of the time in Washington State do not owe any state income tax, because WA does not have a state income tax. FTEs living 100% of the time in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming also do not have to pay any state income tax. FTEs living in other states will need to pay their state's income tax.

Microsoft changes your base salary depending on your location, with Bay Area FTEs receiving $10k more in base salary than Puget Sound FTEs, and FTEs working in other locations may receive less than Puget Sound FTEs.

However, the 50 states have different tax laws. Cost of living and local tax laws can affect your compensation. While tax evasion is illegal and definitely not what we are advocating here, you may want to seriously consider working in a more tax-favorable state, given Microsoft's new WFH policy allowing FTEs to work from anywhere >50% of the time with manager approval. Living in Seattle has its tax perks. If you're looking for a less expensive place than Seattle, other options include Austin, Texas and Florida.