Do nurses like paying taxes? The way I see some nurses treating work and investing, it sure seems like it…Imagine, if you didn’t have to pay any taxes on any of your income? Now snap out of it and realize as Benjamin Franklin said “nothing is certain, but death and taxes.” BUT…Did you know you can actually choose your tax rate? And reduce it quite a bit? That’s how I have gotten my effective tax rates SO low. For 2024 my effective tax rate was 4.43%, in 2023 it was just 1.98% and I actually had a negative tax rate of -0.84% in 2022!
>>>>>>>>Listen to the Podcast Episode for even more insights: The Enriched Nurse Podcast – The Enriched Nurse®
Back in 2013, my wife and I made about $150k while both working full time (and before we had kids). We paid almost $50k in taxes between federal, state, social security, etc. That was 1/3rd of our income! I remember doing my tax return and being told I was going to have to start making “estimated quarterly payments” of thousands of dollars on TOP of my usual paycheck withholding. I didn’t get a refund that year, I had to pay several thousands of dollars in the Spring! That’s when I started learning about tax avoidance and became a more effective investor too!
Back then, I remembered thinking how the heck is anyone supposed to invest a lot, live well, and save up a bunch of “emergency” money when so much goes to taxes? The answer I found was by using tax shelters via retirement and similar accounts. I discovered I could actually work less and still make enough money to live well while actually investing more and paying less taxes.
A problem nurses face is that every dollar we earn is taxed. If we work a ton, while we’ll make a ton, we’ll also pay a much higher percentage of our wage to taxes. A two-nurse household especially, can easily start paying federal tax rates of 22%, 24% and 32% on higher incomes. If you live in a beautiful state like Oregon, you can kiss another 10% goodbye too. Tack on some social security and each dollar you earn potentially becomes more like 50-60 cents! When you combine all those income tax rates, they eat up a big chunk of your wage.
Now don’t misunderstand me here, not every dollar is taxed the same. When I say effective tax rate, I’m talking about the average of my federal rates. Sometimes people confuse the brackets and assume once they hit a certain income level, all their income is taxed at that rate. It is not, just the income beyond that brackets level. The lower income amounts are subject to those brackets.
For example, on your first $11k of taxable income, you’ll pay 10% tax and then 12% on the dollars earned between $11,001 until your taxable income is $47k at which point the income above that is taxed at 22% and so on, if you are single. The income level is doubled if you’re married. You can see it in this chart. All the tax brackets for single filers are shown at the bottom and a link for others too.
By using tax shelters, you can avoid paying the higher rates by lowering your taxable income. Your taxable income is the amount subject to corresponding tax brackets also called a marginal rate. Getting a standard deduction does just that. That’s why if you’re literally only earn $15k (the standard deduction for 2025) you’ll be taxed 0%, but if you earn $26k you’ll pay 10% on $11k portion that is taxable. Your income of 26k minus standard deduction of 15k = $11k. You might pay less depending on other factors too. You can deduct a lot more in addition to the standard deduction. You pay lower tax rates on your income that falls within and between tax brackets.
For 2024, none of my income was taxed at the 22% rate at the federal level. This is because I invested tens of thousands of dollars to an HSA, 401k, IRA, and 457 among other tax shelters. Combined with my other tax breaks, like my kids, my taxable income was actually much less than the $94k threshold for a married couple to have to start paying 22% on income above it.
Thinking about your income correctly and understanding your real wage is important, but that’s not the main point I want to make. My main point here, is investing is easier when you aren’t paying a ton of taxes. It’s a great way to build up your investments to six figures and beyond.
One way this becomes very apparent, is while doing your tax return with software. Often when I start my tax return, which I do myself using Turbotax, I actually owe thousands. I improve that as I add my deductions.
If I don’t like how much I have to pay or am getting back, I’ll use IRA contributions to reduce my tax. If I owe any tax at the 22% federal rate, I will get an instant 32% return if I invest more into my IRA. It usually reduces my taxable income below the 22% rate.
How does that build wealth? Well, let’s say investing $10k into my IRA saves me $3200 on my taxes. I just got a 32% return (22% fed + 10% OR) or “profit” on that $10k. That’s a really awesome return considering the stock market’s average is 12% going back decades.
If I invest it in a low-cost index fund there is a good chance it will grow a lot, benefiting from long term stock market returns too. For example, I can reasonably expect that $10k to be worth almost $100k in 20 years or 10x my initial investment. And that $10k was really only $6800 since I got more back on my taxes. This is not theoretical, this is exactly what has happened to my investments I was making 20 years ago. They are up in value, by a lot.
So maybe you’re thinking, I don’t have $10k though. Well, you could use your tax return to offset the investment. Last year I invested about $35k (not all was tax deferred) and I got a tax return of only $1368 after I invested another $6k into my IRA. I made the contribution for 2024, on April 14th, 2025. You can do it retroactively. My actual out of pocket investment was only $5k, since I got money back. This year it wasn’t that impressive honestly, it helped me break even since I still owed a little more tax to Oregon. But in 2022 the results were much more impressive and resulted in a 28% return on my money! Check out the pictures!
For 2022:
I’m using HSA, IRA, 457, 401k, 529, and Roths to make all kinds of investments off my part-time income. Almost any nurse could do this too, but starting with just your 401k will get you tax saving results.
I bet if you added another 5% from each paycheck to your 401k contribution you wouldn’t even notice it on your paychecks in the future. Bonus tip: if you get big tax returns, consider adjusting your withholding so you get more money each paycheck instead of getting your overpaying of taxes back around a year or so. Consult a professional if you need financial or tax advice.
Investment income can get more favorable tax treatment than your extra shift hours. Meaning a savvy investor can actually make more than a nurse, yet pay lower taxes on the investment income. Earned income like nursing wages tends to have the highest taxes in the US. Investing and understanding taxes (and how to avoid them) is pretty critical to wealth-building!
Recap:
Your nursing wage is progressively taxed more as you earn more.
Your effective tax rate is the average of the federal income tax brackets each level of earnings is taxed at.
You can avoid taxes by lowering your taxable income and investing via tax-advantaged and deferred accounts like your 401k.
You can see the returns in the form of tax savings now which will grow tax-free.
This lowers your taxable income and allows for tax-free growth with taxes paid later on in life.
There are also tax avoidance strategies for later in life too!
You don’t have to like finance stuff, but if you like living well, paying less taxes, reducing your burnout risk, and not wasting your hard-earned money, you should really consider increasing your financial literacy.
Our introductory membership can do just that and includes three awesome courses with 5 contact hours. Our paid courses and membership tiers can help you transform, optimize, and grow your finances further, including better understanding how to pay less tax, earn more, and invest more. Become a member for free today! Or subscribe for discounts and our newsletter!
IRS Link: Federal income tax rates and brackets | Internal Revenue Service
