If you think a six-figure salary makes you rich in California, think again.
These days it takes a staggeringly high income to break into the Golden State’s top 5% of earners. Recent data indicates that to count yourself among California’s wealthiest 1 in 20 households, you need to pull in roughly half a million dollars per year.
California is now one of about a dozen states – along with high-income enclaves like New York, Connecticut, and Washington, D.C. – where an annual salary around $500,000 is the entry ticket to the top 5%. That figure far outpaces the national benchmark: across the U.S., the threshold to join the top 5% of earners is about $290,185 a year. In other words, California’s elite earners must make nearly double what it takes to be “rich” in many other parts of the country.
To put it in perspective, Californians earning ~$500K are in truly rarefied territory. Only a handful of states have an equal or higher bar for top-tier incomes. For example, in Connecticut – which leads the nation – you’d need to earn about $602,700 annually just to crack the 95th income percentile.
California isn’t far behind that extreme. In fact, the top 5% of households in California bring in around $454,829 on average each year, according to one recent analysis of U.S. Census data. (By comparison, New York’s top 5% average about $553,000, and Connecticut’s about $519,000.) California’s high-earner incomes are enormous by any standard – yet the state actually ranks roughly in the middle of the pack for ultra-rich pay. A dozen other states boast even higher average incomes for their top 5%, underscoring that California’s wealthy are wealthy indeed, but not alone.
Why is the “rich” threshold in California so high? One big reason is the state’s notorious cost of living. A big paycheck simply doesn’t stretch as far in California as it would in most of the country. Everything from housing to groceries to gas is more expensive, especially in coastal urban hubs.
Housing costs are the most dramatic example: California home prices are more than twice as expensive as typical U.S. home prices. Even a “middle-tier” home in California now runs double the price of a comparable home nationally, and in desirable areas like the Bay Area or Los Angeles, prices are higher still. This puts enormous pressure on incomes. Californians must devote a much larger share of their earnings to basics like mortgages or rent. It also means an income that would signify luxury elsewhere might barely afford an upper-middle-class lifestyle in parts of California.
In fact, by one estimate you’d need to earn at least $80,000 a year just to attain a “living wage” in California – a far cry from true affluence. And wealth is a moving target: in San Francisco, for instance, residents say they would need a net worth of about $4.7 million to feel “wealthy,” reflecting the sky-high costs and expectations in that city. The upshot is that being “rich” in California comes at a premium. A salary that places you in the top 5% here buys a lifestyle that might only be top 10% somewhere else.
Another factor raising the bar is California’s unique economy and income distribution. The state is home to many of the nation’s highest-paying industries – tech, entertainment, finance – which concentrate extreme incomes at the top. Silicon Valley alone mints thousands of new millionaires from stock options and IPOs during boom times. Southern California’s entertainment and real estate sectors also generate outsized incomes for a select few.
This pushes up the 5% threshold. It also contributes to widening inequality between those at the top and the middle-class. (For context, the typical U.S. household earns around $75,000 a year – meaning the average Californian in the top 5% is making six times the income of an average American family.) In California, even the median household income is higher than the national median, yet the gulf between median earners and the top 5% has grown over time. According to the Public Policy Institute of California, the state’s top-income families now make about three times more than families at the median, a gap that has widened significantly since the 1980s. All of this highlights how rarefied the half-million-dollar club truly is.
High incomes in California also come with high tax burdens – a crucial “tax implication” for top earners. The state famously levies some of the heaviest income taxes in the nation on its wealthy residents. In fact, California recently raised its top income tax rate to 14.4%, the highest statewide rate in America by far. (Hawaii’s top rate is 11%; no other state currently exceeds 13%) That new 14.4% bracket kicks in on incomes over $1 million, but even those earning well below that will feel California’s steeply progressive tax rates.
For a single filer making around $500,000, much of their income would be taxed at marginal rates of 10% or more at the state level alone. Combine that with the federal top income tax rate of 37%, and some Californians end up paying over half of each additional dollar they earn in taxes.
In other words, once you’re in the top brackets, the tax man takes a bigger bite out of every raise or bonus. There’s also the matter of federal deductions (or lack thereof). The 2017 tax law put a $10,000 cap on state and local tax (SALT) deductions, which means high-earning Californians can only write off a tiny fraction of their enormous state tax bills on their federal return. The SALT cap effectively makes California’s state taxes even more painful, since most of what wealthy residents pay to Sacramento can no longer be deducted from their federal taxable income.
All told, a top-5% earner in California faces a tax gauntlet that significantly reduces take-home pay. This is a key consideration that sets California’s wealthy apart: a $500,000 salary in Texas or Florida (which levy no state income tax) goes a lot further after taxes than the same salary in California, where state taxes alone could easily exceed $50,000 a year.
These financial pressures are shaping behavior among high earners. Some wealthy Californians have even uprooted and moved to friendlier tax climates. In recent years, California has seen a net outflow of high-income households to other states. IRS migration data show that the state lost more top earners than it gained, often to places like Texas, Florida, and other no-income-tax states.
This trend – colloquially dubbed a “millionaire migration” – speaks to the delicate balance high earners must weigh: California offers abundant economic opportunity and a coveted lifestyle, but also imposes unusually heavy costs on those who succeed.
Policymakers are keenly aware that if taxes or costs climb too high, they risk driving away the very taxpayers who contribute a large share of state revenues. (California’s budget is heavily dependent on top earners; the top 1% alone pay close to half of all state income taxes.)
So far, despite some outmigration, California remains home to a huge concentration of wealth. By one recent count, the state still has over 1.2 million millionaires – more than any other state in absolute terms. In many ways, the rich have not fled en masse; California’s dynamic economy continues to mint new affluent residents each year. But the trickle of exits underscores how acutely high-income folks feel the pinch of California’s cost structure.
All of this paints a nuanced picture of what it means to be “rich” in California in 2025. The headline is that you’ll need an exceptionally large income – on the order of $450,000 to $500,000+ a year – to join the top 5% club in the Golden State. That figure has risen sharply in recent years, driven by wage growth at the top and inflation in living costs. It far exceeds the national norm for being considered wealthy. Yet earning that kind of money in California is a double-edged sword.
On one hand, it confers a level of prosperity and status reserved for a tiny fraction of the population. On the other, it comes with equally outsized expenses – from multi-million-dollar home prices to punishing tax bills – that eat into what the money can buy.
In California, a half-million-dollar income can still feel surprisingly middle-class once the mortgage, taxes, and basic costs are paid. As a result, many high earners here don’t fit the stereotype of carefree luxury; instead, they carefully budget, invest, and strategize to make the most of their after-tax dollars.
The financial calculus of being wealthy in California is complex, and it’s a reminder that “rich” is a relative term. In a state known for its extremes, even the top 5% find that their fortunes are shaped by broader economic forces – from income inequality to cost-of-living pressures – as much as by their own success.
