Canadians moving to the United States…don’t do it for the tax savings.
In the past few years, we have noted a particular trend in the recruitment of Canadian IT professionals by US companies to cities such as San Francisco or Seattle. The job offers typically come with the lure of working for a large multinational technology company, with a comparable salary to the current Canadian salary (but in USD, so these days that would translate to a 30% increase) and the opportunity to live in a coastal US city where young (and old – ER) professionals envision the perfect life of open concept office space, flexible hours and afternoon billiards games etc… We frequently get calls from these individuals asking about the tax impact of moving to the United States.
Our standard answer? “Tax is only one part of the equation….BUT….” and of course we proceed to describe not only the process of exiting Canada for tax purposes (that will be a different blog post) but also the US income tax brackets, social security and medicare tax rates. All stuff that makes for a particularly invigorating conversation. In a nutshell, for professionals earning $100,000, along with the promise of landing a dream job (or at least a job with the possibility of stepping into the dream job of a multinational tech company), comes a barely notable increase in take home pay after tax – Now, granted, this is without considering possible pay premiums offered by location OR foreign exchange. It also should be noted that these numbers change slightly for those individuals who are intercompany transfers to the US but let’s assume our professionals are being recruited and hired direct by a US company.
Surprised? Most people are. The numbers (roughly) tell the story (based on 2016 tax rates), the tax rate differences should certainly not be the only reason our single professional relocates heart and home…
Obviously foreign exchange and variation in pay levels would affect the Net take home pay, for example at today’s current US / Cdn FX rate, a professional moving from Ottawa to Seattle would enjoy a 30% increase in her take home salary, that isn’t chump change and this is typically the point in the consultation where we mention the other side of relocation such as the cost of living and health care. We don’t counsel on these matters but through client experience we can share that health care would be approximately 3 times that in Canada, and a one bedroom apartment in Seattle is double (three times in San Francisco!) that of a similar one in Ottawa.
Married Couple relocating to the United States
Even with the favourable US tax rates for single income families filing joint returns, the Net Take Home doesn’t appear too enticing, certainly not enough of a reason to move across the border with a child and all your belongings! Again, foreign exchange and potential increase in pay level in the West Coast cities can certainly change one’s opinion – perhaps until this lovely couple begins shopping for a 2 bedroom apartment and family style health care, when suddenly the bottom line AFTER Living and Health Care costs doesn’t look so utopian…
We don’t mean to suggest that the professionals we have profiled above shouldn’t move, but we aim to educate those looking to move south of the border that tax shouldn’t be a prime factor, and that professional development, opportunity, adventure and lifestyle should factor more heavily.
Once you have made the decision to move, talk to us. We can take care of the tax side of things so you can enjoy your new life in your new city!