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Comment by ammon | Hacker News Reader

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.

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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.

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."

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

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.

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....

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