I hear this phrase in some form or another from every person I know that lives outside the five boroughs. I’ve always wondered though, is that just a coping strategy or is this the original geo arbitrage?
Let’s find out.
First, how much is there to actually save? New York City income taxes are graduated just like federal taxes, meaning that the first dollars you make are taxed at a lower rate than the last dollars you make. Here’s the chart for 2018:
|Bracket||Single||Married||Head of Household|
|2.907%||$0 – $12,000||$0 – $21,600||$0 – $14,400|
|3.534%||$12,001 – $25,000||$21,601 – $45,000||$14,401 – $30,000|
|3.591%||$25,001 – $50,000||$45,001 – $90,000||$30,001 – $60,000|
|3.648%||$50,001 – $500,000||$90,001 – $500,000||$60,001 – $500,000|
*Brackets for Married Filing Separately are the same as Single
Keep in mind that these numbers are for taxable income, which is the income you have left after taking exemptions and deductions.
For these example after-tax incomes, this is how much you would pay in city taxes:
|Income||Single||Married||Head of Household|
Assuming that you need to work in Manhattan, here are the amounts you would need to be making just to offset the cost of commuting into one of the main transit hubs:
|Monthly Pass||Cost||Single||Married||Head of Household|
|NJTransit Bus Zone 2||$109||$38,919||$40,845||$39,417|
|NJTransit Train Zone 2||$152||$53,238||$55,281||$53,786|
|Metro North Zone 3||$239||$81,856||$84,354||$89,739|
|LIRR Zone 4||$261||$89,093||$91,680||$89,739|
|Metro North Greenwich||$301||$102,251||$104,838||$102,897|
So if you’re making less than six figures a year and are still determined to save on income tax, the only neighborhoods that make sense are those along the PATH, just outside the Lincoln Tunnel, and the closest towns beyond Secaucus Junction. Any savings you’d get by moving to Westchester, Long Island, and Connecticut would be eaten up by train tickets.
If you’re fortunate to work within walking distance of the transit hubs and won’t need an unlimited 30-day MetroCard, then transit costs are essentially a wash or at least lowered by $121.
But what if you own property?
New Jersey, Long Island, and Westchester are famous for their eye-popping property tax bills. Let’s say that the average property tax bill is about $5,000 cheaper in the city (based on the figures presented here). Here are the amounts that you would have to make in order to break even on the higher property taxes:
|Single||Married||Head of Household|
So what’s the takeaway?
If you’re renting, make less than $40,000 after-tax income, and don’t work within walking distance of the PATH or Port Authority, stay put. If you’re renting and make over $40,000 after-tax income or work within walking distance of the PATH or Port Authority, take the PATH or bus from Port Authority across the river and don’t go any deeper in to New Jersey if you have to. If you’re buying, stick around the city until you’re making north of $140,000 taxable income and then some if your transit costs increase as well. Obviously there are many more factors that you need to consider about your own situation before making a decision, so do your own calculations.
Hopefully this provides a good starting point for thinking about what’s best for you. I’d love to hear what other factors you considered in your decision!