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Moving to a new state for work? Don’t forget these 3 tax considerations

Avoid letting the excitement of relocation distract you from planning for the tax changes that come with your new job.

Moving to a new state for work? Don’t forget these 3 tax considerations
[Source Images: cottonbro/Pexels; Getty]

After college graduation, the standard rite of passage is usually to move to a big city like New York, live in a closet apartment with expensive rent, work a stressful job, and develop a latte addiction, all for the sake of career advancement.

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But the new way of remote work has caused many of us Gen-Zers and young millennials to reconsider living in large urban centers as the benefits of living in those cities may have started to dwindle. During the pandemic, in fact, 31% of younger workers relocated, according to a 2021 Bankrate survey. Back to our hometowns we young professionals went, even if it meant living in our parents’ basements for a bit.

The biggest worry about moving back to mom and dad’s might have been being treated like teenagers again (or in the case of those who are simply relocating, the burdensome process of moving). But there’s a more abstract catch—particularly when it comes to filing taxes.

After all, navigating a new state’s income taxes can be tough. If you’ve relocated over the past year or are considering relocating soon, don’t let the excitement of a new place distract you from the practical matter of planning for tax changes. Many factors can impact your total obligation, but these three main tax considerations are most important for young professionals looking to relocate.

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1. Moving to a state without income tax

Moving to a state with no income tax can feel a bit like getting a small pay bump. Unquestionably, this is an attractive feature of living in states like Washington, Texas, or New Hampshire. However, that slight raise can become a double-edged sword if you don’t use it wisely.

When calculating your total tax expenses, note the trade-offs in your new home: Some states make up for the lack of income taxes by increasing levies in other areas such as sales or property taxes. Also, certain public services, infrastructure, or transportation options might be lacking in states without income tax or in less-metropolitan areas, which might mean adding a car payment and auto insurance to your monthly spending. The added expense of a car alone can negate whatever gains you might have gotten from the lack of income tax. And if you plan to set down roots and purchase a house in your new state, keep an eye on property tax rates that could negatively offset your gains in take-home pay.

Even if none of these applies, you should still take care to avoid the trap of lifestyle creep. Similar to how household clutter seems to expand and fill whatever space you have, your lifestyle can quickly grow alongside that heftier paycheck. Instead of living larger, budget the extra funds toward retirement, monthly necessities, or future goals.

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2. Moving to a state with income tax

If you’re moving to a state with income tax, then you don’t have to worry about what to do with that extra cash. But it’s important to understand the income tax situation to better plan your income-tax withholdings and your budgeting for tax time, as states vary in how they handle their income taxes.

Some have a flat rate, while others use a marginal tax bracket as the federal government does. If you’ve established residence in a new state with income tax, you have to pay the taxes there. And if your place of employment is located in certain states and local areas, like New York, you’ll still have to pay income tax in that state, regardless of where you live.

Keep in mind, too, that it’s not just state and federal income taxes to watch out for—depending on your neighborhood, you might be looking at a local income tax as well. The local tax rate will vary depending on your location; multiply your annual income by the local tax rate to calculate your local tax liability. If you don’t know the local rate, contact your municipal government or check a reputable website, like the Tax Foundation. With this information, you can ensure your employer is withholding the correct percentages from your paychecks or, if you’re self-employed, that you’re setting aside enough for tax time.

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3. How moving can affect equity taxes

It’s not just traditional income tax you need to pay attention to when moving to a new state. Depending on where you’re moving, you might be looking at much of your equity compensation being taxed as income.

That means that items like incentive stock options could end up being taxed more than before. Unlike with restricted stock units, employers don’t withhold the taxes on these stock options for you. It’s on you to withhold the proper amount from not only your FICA tax, but also the state income tax. When determining the return on your investments, make sure your calculations are based on the amount you’ll have after taxes and fees. Otherwise, you’ll paint yourself an unrealistic financial picture.

Don’t hesitate to hire a local CPA to do your taxes under your new home’s guidelines so you can gain a clear understanding of what your actual take-home pay will be. Once you secure a job with the income you need, you can accurately budget and better understand your true purchasing power.

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Taxes are inevitable, but they don’t have to cramp your style. Make sure you factor taxes into your preparations to move, but don’t let them be a main factor dictating your life decisions. By finding a balance between what you want and what you can afford, you can step into your future taking full advantage of your newly remote world.


Odaro Aisueni is a first-generation Nigerian American who works as a financial planner at Plancorp, a full-service wealth management company serving families in more than 80% of the United States.

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