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Comment by harterrt | Hacker News Reader

It looks like the salary differential of $33k listed in the article is gross earnings. After taxes this would just barely cover the rent differential of $1.5k/mo ($18k/year). Note that this is the best case scenario according to their estimates.

What troubles me is the use of median rent to compare housing costs. As rent increases, renters are likely to downsize offsetting some of the rent increase. I'd be willing to bet Seattle renters are able to get more space for the area's median rental. Accordingly, the salary increase probably doesn't cover the rent increase for a similar sized home.

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A peculiarity of "median" is neither my income nor lifestyle are median. I'm currently thousands of miles from SV and earn and live at the 90th to 95th percentile depending on who's fuzzy math and crazy definitions you trust. So its interesting to know median expenses for something like coffee or restaurant food, but I'd never live in a median real estate so whats the standard of living like at the 95th percentile assuming I'd get a raise? Its pretty good for me and my family where I live...

Median would be relevant if you were talking about moving to CA to sell car insurance to tech people.

EDIT

I incorrectly multiplied the tax rate to the salary difference, and said that this was a 5$ difference. This is totally wrong (as multiple people point out below). I'll leave my original embarrassing comment as a cation to not write stupid things :)

I just added in a mention of the tax difference. But the numbers are 13.3% in CA vs 0% in WA. That's significant, for sure. But 13% tax on $33k is about $5k. I don't think that changes the conclusion that the salary difference does (in many cases) cover the housing costs.

You're likely correct about the price for a similarly sized home. People who want large homes should probably not move to the Bay Area.

Thanks for adding the note on the tax difference! That doesn't address my point though.

If the salary difference of $33k is the difference between gross salary, that $33k is going to be taxed at the marginal tax rate. My guess at a marginal tax rate would be ~40%. Accordingly, that $33k becomes closer to $20k after tax.

Edit: to clarify, consider a Seattle salary of $100k and a Bay Area salary of $133k. The take-home salary for each location would be:

  Seattle : $100k*(1-0.4) = $60k 
  Bay Area: $130k*(1-0.4) = $78k

Leaving $19.8k in additional income to cover the median rent increase of $18k annually.

> My guess at a marginal tax rate would be ~40%.

Sounds high for Seattle.

Washington state has no state income tax, which in California is a little under 10%: https://www.tax-brackets.org/californiataxtable

Works out to $9k according to this for a single filer: https://smartasset.com/taxes/california-tax-calculator#8TRRj... -- so your additional income is more like $11k, or just under $1k / mo. In my experience, the difference in housing is far more than $1k/mo, so you come out ahead in Seattle.

EDIT: Looks like I forgot about California's other taxes on payroll, so it's actually even more in Seattle's favor.

There are take-home salary calculators online (know about the variations by state) if you want to get that "into it."

If you move to CA, you need to pay state tax on your entire earnings, not just your raise. 13.3% of 140k is more than 18k, which is certainly significant.

You're totally correct and I am wrong :)

Wait -- is the assertion here that California state tax rates aren't marginal? Because I don't think that's true.

CA taxes are marginal. My math was overly simplistic, because I only wanted to illustrate that you needed to pay CA taxes on your full salary.

The difference is that WA doesn't have state income tax.

I believe you can deduct state from federal tax, which would save ~2.5% in marginal tax. In addition, social security phases out at ~120k so that's another 7.5% savings. So the difference is almost a wash if I understand correctly?

Don't forget about AMT. That usually throws a wrench in things.

https://en.wikipedia.org/wiki/Alternative_minimum_tax

Correct. Specifically, it disallows deduction of state/local taxes from your federal taxable income.

Ha, getting taxes wrong isn't stupid. It's a sign that taxes are complicated. :)

Taxes can be complicated but tax brackets aren't a complicated concept. Especially for programmers. Not understanding and planning around taxes is extremely unwise and inefficient. If you understand taxes and finances you can cut another 10-20 years off your working life.

You should write a primer. A lot of programmers get into the game pretty young and figure they'll deal with all of the financial planning stuff when they're older.

One nitpick: the 13.3% bracket only applies to taxable income of >$1M/year. The marginal rate that actually applies to most of the numbers being thrown around is 9.3%, which corresponds to the 51-263K bracket if filing a single return (103-526K if married filing jointly or HOH) - plus you can deduct these taxes on your federal return, to boot.

https://www.tax-brackets.org/californiataxtable

Where are you getting 13.3%? Most likely a software developer is going to be in the 9.3% bracket. And it is also a graduated bracket system so you are only paying that 9.3% on income over $51K.

See https://smartasset.com/taxes/california-tax-calculator

On a $150K income you are going to be paying an effective rate for CA around 7%.

You're omitting MediCal. It ends up being about 13% (marginal) after it is added.

13.3% is the marginal tax for people making over $1 million/year in CA. People in that income bracket are not worrying about whether they should move to the Bay Area.

Are you referring to CA OASDI/EE?

Not sure what MediCal is. You mean Medicare? That's federal.

CA OASDI/EE is 0.9% but you only pay it on the first $100K or so.

For clarity, I wrote up my thoughts here [0]. The issue I pointed out applies to Federal as well as State taxes. By my calculations, it looks like it's clearly not worth it to move to the Bay Area.

[0] http://blog.harterrt.com/is-moving-to-the-bay-area-worth-it....

Downsizing is a plus, not something to be baked into estimates. If down sizing to having roommates in the Bay Area, then the only fair comparison is the same roommate situation elsewhere.

The idea is to normalize salaries by cost of living. If you have more specific information for each area (you have actual offers), then you can use that. However, using a lower rent for the Bay Area, for example, because you'll have roommate, may set you up to take an equivalently lower salary.

For example, if you're going from $100k/$2000 location to $100k/$3000 (salary / rent), but you set it back to $2000 because that's your rent with roommates, you've foolishly/ignorantly accepted a lower equivalent salary.

How would a renter effectively downsize if the entire market is increasing? Is this the typical reaction from those who can afford it?

A renter can get get roommates or landlords can subdivide properties further. Renters may also consider increasing their commute time.

2bdrm to 1brm, 1bdrm to studio, studio to van.

van to nap-pod

Compromise on neighbourhood. If you're in SF instead of living in the nice areas, go to Tenderloin, Hunter's Point, etc. You can find great deals in those areas.

Best is to move there in an RV :)

Where do you imagine you're going to park it? It's 2 hour parking in resdidential areas unless you have a resident permit (not that there'd be any available), no overnight parking in commercial areas.

A paid parking space will run you the price of a 1-bedroom in a sane region.

i don't know the Bay area, but can you maybe get a job at a company that has some parking spaces?

Then use an autonomous RV. As long as it keeps moving around, you don't have to pay for parking :)

Some Walmart stores allow RV parking -- not sure if there is a limit, or what the quality-of-life is like.

Mountain View's Walmart does not, according to this: http://www.walmartlocator.com/no-park-walmarts-in-california...

People have lived in an RV in Google's parking lot. Being on the campus all the time, they could save almost all of their salary.

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