Does Tom Hanks pay 10 million in taxes on a 20 million movie paycheck?

So I was just reading about how Tom Hanks got paid 20 million for his latest blockbuster. Got me thinking about how much he actually keeps after Uncle Sam takes his cut. If the tax rate is somewhere around 40-50% for the super wealthy, does that mean he's literally paying close to 10 million dollars just in taxes? That seems insane to me, but I guess that's how progressive tax brackets work when you make that kind of money? I'm just a regular guy making normal wages so it's hard to even wrap my head around these numbers. Anyone know how celebrity taxation actually works at that income level?

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20 comments

Victoria Charity

•8M

Tax professional here! The short answer is yes, but it's more complicated than a straight percentage. For those ultra-high earners like Tom Hanks, they'll face several tax layers: Federal income tax tops out at 37% for income over $578,125 (for single filers in 2023). State taxes vary - California (where most actors live) adds another 13.3% for income over $1 million. Then there's the 3.8% Net Investment Income Tax that often applies. So theoretically, the tax burden could approach 50% or more on that $20 million. But here's where it gets interesting - most celebrities don't just get a simple paycheck. They often have loan-out corporations, take deferred compensation, use various income timing strategies, and claim significant business deductions. Their teams of accountants and tax attorneys structure things to minimize tax burden legally.

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Victoria Charity

•8M

Most celebrities do end up paying lower effective rates than the maximum through legal tax strategies. A $20M earner might pay closer to 35-40% effective rate rather than the full 50%+ statutory rate when all deductions are applied. Regarding employment status, it varies. Many major stars operate through "loan-out corporations" where they're technically employees of their own company, which then contracts with the studio. This corporate structure provides additional tax planning opportunities and business expense deductions that wouldn't be available to a simple employee. They can deduct agent fees (often 10%), manager fees, business travel, certain wardrobe expenses, and other legitimate business costs before calculating their personal tax liability.

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Oscar Murphy

•8M

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Lauren Zeb

•8M

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•8M

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Anthony Young

•8M

Getting back to the original question about high-income taxation - I worked as a business manager for entertainment clients for several years. One thing nobody mentioned is that most A-list actors like Tom Hanks don't just get a flat fee. They often negotiate a base salary PLUS a percentage of box office profits, which gets taxed differently (potentially as capital gains in some structures). These "back-end deals" can double or triple their earnings but also create multiple tax situations.

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Anthony Young

•8M

They only pay taxes when the income actually comes in, not when they sign the contract. So for profit participation, they'll pay taxes as each quarterly or annual profit payment arrives, sometimes for years after the movie's release. This can actually be beneficial for tax planning since they can spread income across multiple tax years. Yes, agent and manager fees (typically 10% to agents and 15% to managers) are considered legitimate business expenses that can be deducted. Same with legal fees, business-related travel, certain wardrobe expenses for appearances, and security costs when business-related. All these deductions happen before calculating their taxable income, which effectively lowers their tax rate. But even with all deductions, someone earning $20M will still likely pay $7-8 million in combined federal and state taxes.

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Paolo Ricci

•4M

This is a fascinating discussion! As someone who works in tax preparation, I can confirm that celebrities like Tom Hanks face incredibly complex tax situations. One aspect that hasn't been mentioned yet is the Alternative Minimum Tax (AMT), which often kicks in for high earners and can actually increase their effective tax rate even further. Also, don't forget about self-employment taxes! If Tom Hanks is operating through a loan-out corporation as mentioned earlier, he might avoid some SE taxes, but if he's treated as self-employed, that's an additional 15.3% on the first $160,200 of income (for 2023). The timing of income recognition is huge too - many actors negotiate to defer portions of their compensation to future years when they might be in lower tax brackets or have moved to more tax-friendly states. It's really a chess game between their financial advisors and the tax code!

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Mei Wong

•19d

Great point about the AMT! I never really understood how that worked for high earners. So even after all their deductions and tax planning strategies, celebrities can still get hit with AMT that essentially ignores those deductions? That seems like it could really catch people off guard if they're not planning for it. Also curious - when you mention deferring compensation to future years, how does that actually work in practice? Like can Tom Hanks say "pay me $10M this year and $10M in 2026" when he signs the contract? And what happens if tax rates go up in those future years - wouldn't that backfire?

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