Your tax bracket can vary from city to city – for the very same lifestyle.
Of course many people look at local tax rates when they decide where to live. Florida and six other states have no income tax. Alaska has the lowest tax burden, counting all state and local taxes.
But did you know that federal taxes can effectively vary from location to location? Here’s how it happens.
You and your recent classmate are both nurses. You have roughly the same experience, the same duties. You make $94,000. He makes $61,000. Fair?
Not in the direction you may think. Your classmate works at Mercy Medical Center in Des Moines, Iowa. You are at Santa Clara Valley Medical Center in San Jose, California. Which means that your rent is $1,538/mo; his is $586 for a similar apartment and neighborhood.
Yes, you earn 54% more than he does, but you pay nearly three times as much for housing. Your monthly energy costs are $280; his are $145. An electrician’s visit costs $218 in San Jose; $65 in Des Moines.
You get the idea. When everything is counted up, you would need to earn $105,000 to afford the same life your classmate can have for $61,000. He’s better off than you. And here’s the kicker: because your earnings are higher and push you into a higher tax bracket, you could pay $17,099 in federal taxes while he pays $8,849!
The buzz of Manhattan! The energy of Silicon Valley! Enticing, yes, but it would pay you big time to find buzz and energy in a lower-cost city.
(Note: State and local tax burden is graded on our soon-to-be-launched Hometown Resilience Reports.)