Let me tell you how it will be: there's one for you, nineteen for me
August 19, 2013 1:32 PM   Subscribe

SO has job offer 1800 miles away in beautiful California. Yesterday we were told by friends to expect over 50% of his salary to be taxed, leaving us with net income not far from what we make now in landlocked midwestern state. Should we be concerned about being destitute if we take this job and make the move to Ventura County?

We both grew up on the east coast, where costs were high, but life was life and it was all we knew and we were content. I've been in the midwest for sixteen years, SO for ten years. The opportunity to work for a competitor was unexpected and, at the time, seemed extremely beneficial for us.

SO's salary will be north of 140K. My salary will be north of 50K. Our taxable income will have deductions for 401k and health insurance, and maybe additional withholding, cause we're unsure of what in the sam-hell is going on here. We have a house in midwest to sell, one car loan, and no other carried debt.

We didn't believe we're walking into this blindly. We were so excited about a 30K+ increase in his salary and a move back to the coast, but after yesterday, it now seems like we will be increasing our work-hours and won't see a penny of it. We live very comfortably here and have planned (mentally) for the changes in cost of living. Now I feel like we're psyching ourselves out a bit that we'll live hand to mouth after the move. We'd appreciate the wisdom of the community to tell us that "sure, it's expensive as shit out here, but it's only for gas and housing. i've made the move from another state and it's so worth it" or "no, break your verbal commitment right now and stay put" or "well, you do lose 50% of your check to taxes, but it's really okay because you're going to make a combined 190K and you're grown ups so learn how to budget."
posted by anonymous to Work & Money (25 answers total) 6 users marked this as a favorite
Here's the tax calculator for 2012. Plug in some reasonable numbers.
posted by sageleaf at 1:37 PM on August 19, 2013 [1 favorite]

huh? no - their math is is totally wrong. Yes CA has high income taxes, but marginal rates for your bracket are 9%. I'm too lazy to figure out what your average rate would be, but quite a bit lower.

And that assumes you come from a non state income tax state. Which you probably don't because all of the midwest states have an income tax.
posted by JPD at 1:39 PM on August 19, 2013 [4 favorites]

On the tax stuff, you should probably get confirmation from a CPA on your exact obligations, but you're not going to pay 50% income tax. Your friends are ridiculous.

Housing will be expensive, but it really depends on where you are. Ventura County is pretty big - parts of it are de facto suburbs of LA, although quite far away from downtown. That shouldn't really be a concern for you if the job is in VC, unless you plan to visit there regularly. My in-laws live in Thousand Oaks and Simi Valley, and are about 30-40 minutes from the 405/101 interchange depending on traffic.

VC is mostly populated on the southern side, along the 101 corridor. South of that is beach communities, like Malibu, and mountains. North is more mountains and farmland. Thousand Oaks, Simi, and Moorpark are the most LA-suburby and are mostly bedroom communities. Oxnard, Camarillo, and Ventura are more agricultural or beach communities. Ventura proper would probably be the most expensive of those.
posted by LionIndex at 1:42 PM on August 19, 2013

Real estate taxes are of course a separate issue, and that will vary greatly depending on what, if anything, you buy, and should be taken into account when figuring your homebuying affordability level.
posted by sageleaf at 1:43 PM on August 19, 2013 [1 favorite]

Cost of living calculator: http://money.cnn.com/calculator/pf/cost-of-living/

What will be your commute? Do you like having a house and yard, and how much is it worth it to you? What will it cost to live there? The state taxes are a factor, but far from the most important.

JPD: say their current state tax is 4% of $160k ($6400) and CA is 9% of 190k ($17100) then that would eat up about a 1/3 of the salary increase alone (though my numbers are all approximates and don't count progressive taxation, etc.)
posted by flimflam at 1:44 PM on August 19, 2013 [2 favorites]

It is the cost of housing that is really going to hit you, much more than the taxes. Expect to be living in a much smaller place with fewer amenities and paying more than you pay right now. Either that or expect your commute to be long (depending on where his office is). But the bonus is that you don't need AC and you'll need a lot less heat so you're saving on electricity right there. And the beach is close-by and the foothills are close by, it is a really beautiful place to live.
posted by magnetsphere at 1:48 PM on August 19, 2013

http://www.bestplaces.net/ has a cost of living comparison function. You can put in how much you make currently where you live, and it will show you how much you will need in the specific place in Cali. Or vice versa: You can put in the salary for the job at the new place and it will show you the equivalent in local dollars.
posted by Michele in California at 1:54 PM on August 19, 2013 [1 favorite]

Real Estate taxes in California are silly, so don't buy a house.

On the other hand, due to the madness that is Prop 13, once you've bought a house your property taxes essentially never go up; if you stay in the house you bought a long time, you'll end up a long way ahead of the game compared to most US states on that score. Also remember that what you pay in state taxes is deductible on your Federal income tax, so that reduces the overall load by a not-inconsiderable amount (I'm assuming you'll be itemizing, and I imagine you will). And you'd be fools if you're earning that kind of money if you're not putting as much of that away in tax-deferred retirement accounts as possible, so that reduces your exposure, too (and none of that will be paid in California tax if you're planning on retiring to another state).

Anyway, the long and short of it is that somebody was selling you a line of hilarious BS and you should find something equally ridiculously to panic them about in return ("Oh yeah, that cheese you love is totally poisonous; the FDA is warning everyone who ever consumed more than two ounces of it to report to the CDC HQ in Atlanta, preferably after wrapping themselves head to toe in Saran Wrap").
posted by yoink at 1:57 PM on August 19, 2013

That's a really weird thing to tell someone, and I think they must be bundling something into their idea of "taxes" that isn't actually tax. Like healthcare, for example.

You should be able to do a pretend tax return in TurboTax to get a better feel for what your tax hit is going to be.
posted by Lyn Never at 2:01 PM on August 19, 2013

Should we be concerned about being destitute if we take this job and make the move to Ventura County?

Um, no. I doubt you'll even have to retrench and do any really exacting budgeting, although understanding the differences in real estate costs and taxes will be important, as others have pointed out.

I did have one tax surprise when I moved to CA, though. Basically, all of my federal taxable income (the "wages, salaries, and tips" kind, not real estate or investments, of which I had none) was my CA taxable income, even though I had only been in CA for the last four months of the year. This was not the case in my former home (MN). So, I ended up owing CA taxes on a year's worth of income, while I actually got a return from MN based on what I had earned there before the move.

CA did issue a receipt that I used to deduct it the following year, but I was still a little butthurt about having to pay it in the first place. And, that was a one-time thing, not an ongoing tax burden. But it might be something to keep in the back of your mind.
posted by Austenite at 2:17 PM on August 19, 2013

I did have one tax surprise when I moved to CA, though. Basically, all of my federal taxable income (the "wages, salaries, and tips" kind, not real estate or investments, of which I had none) was my CA taxable income, even though I had only been in CA for the last four months of the year.

That may once have been the case, but it's not any longer. California have a somewhat cumbersome formula for figuring out your taxes if you've only been in the state part of the year, but it does mean you end up only paying tax on the amount you earned in California. Here's a relevant FAQ from the Franchise Tax Board (pdf).
posted by yoink at 2:38 PM on August 19, 2013 [3 favorites]

I agree that 50% is fear mongering--but it way well be that you have a lower standard of living in CA than you do now, even with the raise.

Also consider that the AMT hits harder in high-tax states like NY, CA, CT, and MA, and you will likely be paying higher sales tax. There may also be a lot of hidden little taxes like emissions taxes or whatever, that you don't immediately think of. Add those up with the additional costs of driving, and housing, and whatever, and it could get pricey.

I don't know anything about your circumstances, and this is not legal, tax or accounting advice--you should consult an expert with familiarity with your current and future locations to get a better sense of what you will pay and what you can expect to save.
posted by Admiral Haddock at 2:51 PM on August 19, 2013 [2 favorites]

I second Michele in California re BestPlaces, but I'd send you straight to the Compare Cities page that will show you stats galore for your current city alongside your future one. It can be really enlightening!

If I was moving to that region, I would soooooo include the Ojai region in my search for housing. Of course it would depend on just how far the commute would be. But I'd totally live in a place like this.

You didn't ask about this but you mentioned a car loan, which means you have a car that likely wasn't built to California emissions standards. Check the label under your hood and consider this. It can be a real hassle and expense to get your noncompliant vehicle up to state standards and might be worth selling it where you are.

California is like New York City and Paris: EVERYONE should live there at least once in their lives. Have a great time!
posted by AnOrigamiLife at 3:07 PM on August 19, 2013 [1 favorite]

Looks like if you move to California then you don't have to worry about your car being manufactured to California emissions standards. From AnOrigamiLife's link:

Does this Apply to Someone Moving to California?

If you are moving to California from another state, you may register a new 49-State vehicle if it was first registered by you in your home state, or for military personnel, in the last state of your military service. When applying for vehicle registration in California, you must provide evidence that the vehicle was registered.

posted by sbutler at 3:12 PM on August 19, 2013

We live in Florida, which has no state tax and a much lower housing cost. My hisband's company, though, also has a division in California.

I'm told the standard rule of thumb here is that you'd have to get an offer 40% higher (salary and benefits) than what you are currently making in Florida just to break even.

As you are in the Midwest, you likely have state and local income tax already. Housing is going to be a killer for you, though. Here on the East Coast, houses go on sale for one price, you put in an offer lower than the asking price and usually end up somewhere between the two.

Out on the West coast, housing is madness, absolute madness. Not only are homes AND taxes on them ridiculously over-priced, but people bid on them like auctions on eBay. The starting price is just the beginning and it goes up from there. The closer you are to the city, the higher the price and the smaller the space. Most people end up renting a small place for that reason. You likely have gotten used to large open spaces with big yards, so you won't want that.

The further you go from the metropolitan area,, though, the worse the commute is. California traffic is hellacious.

If you can take the subway or the train, you may save on travel costs, though, especially if you can get rid of one (or both) of your cars. The weather is much better and you will probably spend less on house maintenance than you do now. Schools--well, they can be really good or really bad, depending on where you end up, so definitely look into that.

Weighing the pros and cons is something you will have to do carefully here. expenses on the West coast being ehat they are, although I think your friends are over the top with that 50% business, your spouse may be essentially taking a pay CUT even with that extra 30K in CA.
posted by misha at 3:14 PM on August 19, 2013

Out on the West coast, housing is madness, absolute madness.

That depends enormously on where you are and what your needs are. There isn't as stark a "west coast/east coast" division as you suggest; comparing statewide data when you're moving from one specific locality to another is pretty pointless. If you want a sense of the real prices paid for houses in the area you're planning to move to have a look at zillow.com and look at recently completed sales--you'll get a good sense of what's on offer and what the realistic amount you can expect to pay will be.

The same is true for the comment that "California traffic is hellacious": it is in some places, and it isn't in others. You can use Google's historical traffic data to get a good sense of the realistic commute times for particular routes if you want to look at more far-flung places.

Oh, and while you're focusing on the costs to you of higher income taxes you might want to stop and think about the benefits bought with some of that tax money. As California residents, for example, you can send your children to the California State or UC system for a world-class tertiary education at bargain-basement prices compared to private universities (or compared to what out-of-state residents pay).
posted by yoink at 3:58 PM on August 19, 2013 [3 favorites]

No, you won't be destitute! But I wouldn't get too excited about the $30K income increase either. Base your decision on whats important to you quality-of-life-wise. Do you love your house and will be devastated to sell it? Or is the idea of living in a smaller, cookie-cutter type place thats close to a warm beach (+ mountains and spectacular desert) an even trade-off?
posted by hellameangirl at 3:59 PM on August 19, 2013

When you do move to California, buy a house, all the house you can afford; it will be expensive as all get-out, but buy it anyway. When you're finished with California many years from now you can sell that property and with those funds purchase a truly fabulous place in any area of the country other than major metropolis'. That's the way most people have purchased all the nice places here in Spokane - they move here after having sold their home in California and boy-oh-boy are they happy with what they can buy with that money.

California is a wonderful place in so many ways - it's an experience everyone should have. There is so much to see and do that it will take many years to tire of it and if you're paying on a home throughout that time you'll make out like a bandit when you're ready to move on.

I wouldn't encourage anyone to buy a home in California if their income was below yours, but you two make enough you can make it work to your advantage in the long run.

Enjoy your new world - and invite your doom-and-gloom friends for a visit two years from your move date - you'll have a great time showing off your new place.
posted by aryma at 4:45 PM on August 19, 2013 [3 favorites]

Cost of living calculator: http://money.cnn.com/calculator/pf/cost-of-living/
I developed a deep mistrust of this calculator when it said that housing prices in Boston differ by 0% from Baltimore.
posted by spbmp at 6:38 PM on August 19, 2013 [1 favorite]

I don't know where people are getting the idea that real estate taxes are crazy in California. I mean, they are, but they're crazy in the opposite direction people are implying. Real estate taxes are really low and, more importantly, hardly increase at all no matter how much the value of the property increases.

Now the initial price you might have to pay to acquire real estate may be very high depending on what part of California we're talking about but that has nothing to do with real estate taxes being high.
posted by Justinian at 6:54 PM on August 19, 2013 [2 favorites]

Your SO will also be getting a tax break, because of the Social Security wage cap. In 2013, the maximum amount of taxable earnings is $113,700, so most of his raise won't be subject to the 6.2% Social Security tax.
posted by Jasper Fnorde at 7:46 PM on August 19, 2013

I think they must have been thinking the marginal rate plus sales tax. That's the only figure that's even close to 50%. 28% federal, 9.3% state, plus 7.5% sales tax. That adds up to 44.8% (not that you can add like that, but the kind of people who would say you'll pay half your income in taxes aren't likely to understand why). In some sense, if you earn $1 more and spend it, you only get goods worth half the dollar. I'm not an accountant but they're incorrect that you'll pay half in taxes. Definitely look at housing prices, because in many parts of California it's extremely high, so I doubt you'll come into a windfall, but you may like California a lot.
posted by wnissen at 10:15 PM on August 19, 2013

Yeah, I don't think you'll see any increase in your buying power with a 30k bump in earnings when moving from the Midwest to the nicer parts of California if you're intent on purchasing a home. The reason to make the move isn't more money, it's that you get to live in California.
posted by Justinian at 10:36 PM on August 19, 2013

If I can suggest a source for your friends' thinking, it may be this Lynchburg College study that got a lot of circulation in the right-wing media when it came out late last year, e.g. Townhall.com (as well as regular media). It is suggesting that the top marginal effective tax rate for California will surpass 50%.

It should be noted, however, that the top METR only applies to those in, well, the top brackets. For federal income tax based on wages alone, that's over $450,000. For California, that's actually over $2M. And again, as noted, that's only for the portion of your income that kicks you into that bracket -- the lower brackets are all taxed at their lower rates, even though your aggregate income brings you into the higher bracket. That's why paper tax instructions have long, detailed tables to tell you what your tax is.

I will note that your suggestion that your income will be somewhere around $190K means you're right on the cusp of the federal 28% and 33% brackets, so there's that -- just one dollar over and you pay 5 more points (but I'm not considering deductions/exemptions, so you may not be that close -- the point is you should get a sense of where you are in advance). In fact, it may well be that this jump in federal tax brackets constitutes the majority of the increase in your taxes, rather than moving to California, e.g. if you move from Illinois where there is only one bracket, 5%, then you could experience 5 points of increase from the federal bracket bump and 4 points of increase from the move. Just other factors to keep in mind. Though again, I suspect your taxable income will be significantly lower.
posted by dhartung at 2:36 AM on August 20, 2013

just one dollar over and you pay 5 more points

Just to clarify this: only the one dollar over the higher bracket would be subject to the higher tax rate--not your entire income. This is a very commonly misunderstood aspect of income taxes.

posted by The Minotaur at 8:58 AM on August 20, 2013 [5 favorites]

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