As the labor market continues on its slow path to recovery, some job seekers are considering moving out of state to land a job. Other residents might be tempted to move to different states for a lower cost of living, more entertainment options or just ready for a change of scenery. But like most decisions in life, there are tax implications of where you live.
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An online free State Tax Calculator developed by the National Center for Policy Analysis (NCPA), a nonprofit organization located in Dallas, can help people determine just what’s at stake if you move to another state. The calculator computes the difference in the amount of federal and state income taxes, property taxes and sales taxes you could expect to pay over the rest of your life when you move from one state to another.
The calculator is based on the most sophisticated planning model available -- developed by NCPA Senior Fellow Laurence Kotlikoff. “The model automatically makes saving and investment decisions for the household (including IRA deposits and withdrawals) in order to maximize personal consumption and smooth it out over a lifetime.”
The calculator can also show what your increased or decreased annual discretionary income will be in a new location as well as how much can be left for retirement or to heirs. You can add additional information such as current housing costs and how much you anticipate paying in the new state. Having a background as to the new state’s housing costs would be a valuable tool to have prior to working the other state calculator.
“The tax burden in a new state can make a huge difference in your retirement plans,” says NCPA Senior Fellow Pamela Villarreal. She offered a few examples:
- If a 40-year-old man earning $100,000 a year moves from California to Alaska he will have an additional $4,213 a year to spend every year for the rest his life; the extra income would total $351,700 if saved and left to his children – an amount equal to more than three times his annual income.
- If a 40-year-old woman earning $500,000 a year moves from New Jersey to Wyoming, she will have an additional $12,200 a year in spendable income every year for the rest of her life. If she saves this additional income, it would accumulate to more than $1 million over her lifetime.
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Villarreal adds, “The only savings built into the program is estimated Social Security earnings. Any savings input by the individual (either retirement or non-retirement) is assumed to grow at 4% nominal per year, life expectancy is 100. Thus the results are a conservative estimate.”
Of course, other factors such as increasing or decreasing distance to relatives and friends, amenities you will be shedding versus what you will gain, weather differences, come into play when deciding on whether or not to make a major move. But when it comes to the numbers, crunching them using this tool is fast and easy.