As a high-income earner, taxes are your biggest expense so it’s worth understanding and optimizing every opportunity you have.
When looking at local geoarbitrage opportunities within your own city, start with your largest fixed expenses: taxes, housing, transportation, and food. These will have the biggest impact on your finances, especially for high-income earners who feel like they are living paycheck to paycheck.
New York City is no doubt a HCOL (high cost of living) area. In fact it’s the most expensive city in the US.
There’s a unique tax-arbitrage opportunity just by moving a short distance, allowing you to save thousands (or tens of thousands) a year on your cost of living and supercharge your saving rate!
I’m sure there are other tax-arbitrage opportunities like this around the US, but this is my first-hand experience for folks in NYC. Everything written is my thoughts and not tax advice, so do your own diligence, the benefits could be huge if you get it right.
Comparing Tax Rates: New York Versus New Jersey
As shown below, New York State income tax ranges from 4% – 10.9% (the cumulative amount for all lower tax brackets is shown in parenthesis). Most high-income earners will be in the 6.25% and 6.85% tax brackets (in red), and hitting the top 3 tax brackets will require income in the millions per year.
UPDATE: For the 2023 tax year, New York lowered its 6.25% and 5.85% tax brackets to 6.00% and 5.50%, respectively.
New York State Income Tax Rates
| Tax Rate | Single Filers | Married Filing Jointly |
| 4% | Up to $8,500 | Up to $17,150 |
| 4.5% | $8,501 – $11,700 (plus $340) | $17,151 – $23,600 (plus $686) |
| 5.25% | $11,701 – $13,900 (plus $484) | $23,601 – $27,900 (plus $976) |
| 5.50% | $13,901 – $80,650 (plus $600) | $27,901 – $161,550 (plus $1,202) |
| 6.00% | $80,651 – $215,400 (plus $4,504) | $161,551 – $323,200 (plus $9,021) |
| 6.85% | $215,401 – $1,077,550 (plus $12,926) | $323,201 – $2,155,350 (plus $19,124) |
| 9.65% | $1,077,551 – $5,000,000 (plus $71,984) | $2,155,351 – $5,000,000 (plus $144,626) |
| 10.3% | $5,000,001 – $25,000,000 (plus $450,500) | $5,000,001 – $25,000,000 (plus $419,135) |
| 10.9% | Over $25,000,000 (plus $2,510,500) | Over $25,000,000 (plus $2,479,135) |
Source: New York State Department of Taxation and Finance
NYC residents of the 5 boroughs (Manhattan, Brooklyn, Bronx, Queens, and Staten Island) have to pay an additional tax to the city on top of what is owed to New York State.
As shown below, the maximum NYC tax rate of 3.876% is reached at $50,000 of NYC taxable income, so most high-income earners will be paying an effective NYC tax rate close to the highest bracket. There are no specific NYC tax deductions but there are some tax credits for homeowners and parents with children.
New York City Income Tax Rates
| Tax Rate | Single Filers | Married Filing Jointly |
| 3.078% | Up to $12,000 | Up to $21,600 |
| 3.762% | $12,001 – $25,000 (plus $369) | $21,601 – $45,000 (plus $665) |
| 3.819% | $25,001 – $50,000 (plus $858) | $45,001 – $90,000 (plus $1,545) |
| 3.876% | Over $50,000 (plus $1,813) | Over $90,000 (plus $3,264) |
Source: New York State Department of Taxation and Finance
On the other hand, New Jersey income taxes range from 1.4% – 10.75%, but the income limit to reach the top 3 tax brackets is much lower compared to New York State.
Most high-income earners will fall within the 6.37% and 8.97% tax brackets, meaning that New Jersey residents will pay more state income tax once they make above a mid-six-figure income. The breakeven income level (where NY and NJ state tax is about the same) is around ~$625,000 for a single person and ~$660,000 for a married couple.
New Jersey Income Tax Rates
| Tax Rate | Single Filers | Married Filing Jointly |
| 1.4% | Up to $20,000 | Up to $20,000 |
| 1.75% | $20,001 – $35,000 (plus $280) | $20,001 – $50,000 (plus $800) |
| 2.45% | N/A | $50,001 – $70,000 (plus $2,150) |
| 3.5% | $35,001 – $40,000 (plus $543) | $70,001 – $80,000 (plus $3,050) |
| 5.525% | $40,001 – $75,000 (plus $718) | $80,001 – $150,000 (plus $3,575) |
| 6.37% | $75,001 – $500,000 (plus $2,651) | $150,001 – $500,000 (plus $7,670) |
| 8.97% | $500,001 – $1,000,000 (plus $29,724) | $500,001 – $1,000,000 (plus $29,545) |
| 10.75% | Over $1,000,000 (plus $74,574) | Over $1,000,000 (plus $63,795) |
Source: New Jersey Department of the Treasury
Comparing 3 Tax Scenarios: Living in New York City, New York State, or New Jersey
Let’s meet a hypothetical person named Henry: a single professional living in NYC, making $300,000 a year, and working in bustling Times Square. Henry rents an apartment in Manhattan, uses public transportation and rideshare apps to get around, and enjoys the abundant cultural, culinary, and nightlife options that NYC has to offer.
To keep the calculations simple, we’re assuming Henry takes the standard deduction and does not pay the AMT.
Scenario 1: Staying in New York City
Living in NYC is expensive, not only in terms of cost of living but also from all the taxes.
With a $300,000 gross income, Henry will only see around $177K in his bank account. That’s more than 40% paid between federal, state, city, and FICA taxes if he decides to continue living in NYC.
On the bright side, Henry enjoys the energy of living in the city along with the neverending entertainment and dining options it has to offer. Living in NYC truly feels like you are at the center of the world.
Source: Smart Asset; NY Paycheck Calculator
Scenario 2: Stay Within New York State (Long Island or Upstate NY)
If Henry decides to move out of NYC and go to Long Island or upstate NY (nearby commuter towns like Port Washington or Tarrytown), he can save ~$11K every year on taxes alone, mainly due to the ~4% NYC tax savings.
While Henry will still pay New York State income tax, he won’t have to pay the NYC tax anymore since he is no longer a resident. However, living in Long Island or upstate NY is a big lifestyle shift compared to NYC.
Source: Smart Asset; NY Paycheck Calculator
In terms of time, Henry spends at least ~2 hours every day commuting during the work week (using the LIRR which costs ~$250 for a monthly pass). Since he prefers the amenities of the city, he also goes into Manhattan one day during the weekend, totaling ~50 hours a month commuting back and forth (per hour commuting he saves ~$19 in taxes). This could get tiring…
Source: Google Maps
Scenario 3: Move To New Jersey (Along The Hudson River)
One day while strolling along the Hudson River on the west side of Manhattan, Henry notices some apartment buildings across the river and decides to do some research.
If Henry moves across the river, he will now become a resident of New Jersey and won’t have to pay the NYC tax anymore.
However, he does have to file taxes in both states (NY & NJ) since his office is located in NYC. He pays the higher New York State tax (~$18K) and gets a credit to offset New Jersey tax (~$17K).
As we see below, New Jersey also gives Henry ~$11K a year in tax savings, mainly due to the ~4% New York City taxes.
Source: Smart Asset; NJ Paycheck Calculator
Factoring in the cost of living, Henry can save even more money on big fixed expenses such as rent, food, and services, which are all going to be cheaper than in Manhattan (where an average studio apartment costs ~$3.4K a month).
Sales tax is also worth mentioning, as New Jersey has a 2.25% lower sales tax than NYC (6.625% versus 8.875% sales tax), effectively saving Henry $225 for every $10,000 spent.
In terms of time, Henry cuts his commute in half compared to living in Long Island (paying ~$110 a month for the NJ PATH train), and doubles his tax savings per hour of commuting.
Since he is much physically closer to NYC and has multiple transportation options (train, ferry, rideshare, etc.), he can take advantage of events happening any day of the week or go for a spontaneous stroll in Central Park whenever he wants.
Saving money and time. Talk about a tax-arbitrage and lifestyle improvement opportunity!
Source: Google Maps
Filing Taxes: Living In New Jersey, Working In New York
As a general rule, you file taxes in the state that you reside in. Since there is no tax reciprocity agreement between New Jersey and New York State, if you live in New Jersey and work in NYC, you would file taxes as a New Jersey resident and file a non-resident return to New York State (since you work within the state), but no longer have to pay the ~4% NYC tax.
Will You Be Double-Taxed?
No, you won’t be double taxed by New Jersey and New York State.
You will pay taxes to New York State (your employer typically calculates the withholding), and receive a tax credit for New Jersey to balance out the taxes paid.
While it’s not a $1 for $1 tax credit, most people should have minimal taxes due to New Jersey.
The NYC tax along with other cost of living savings will vastly outweigh any additional New Jersey tax not covered by the tax credit.
What About The Commuter Tax?
While New York State does have a commuter tax (the Metropolitan Commuter Transportation Mobility Tax), it’s paid by employers only and will not apply to most commuters who are W2 employees.
However, if you are self-employed and make over $50,000, then you will be expected to pay the commuter tax of 0.34% of your net profit.
Final Thoughts On Life Across The River
As we’ve seen, high-income earners have a huge tax-saving opportunity if they currently live in NYC.
Of course, these hypothetical scenarios aren’t exhaustive comparisons between living in each area, for example, property tax is different in each area if you want to own your property.
Notably, the potential tax savings are tied to income levels, with less savings for lower incomes and more for higher incomes. If Henry was making $100,000 he would only be saving ~$4k a year, but at $500,000 he would be saving a whopping ~20K a year!
Over time, combined with lowering other fixed expenses, this will have a huge impact on Henry’s wealth building, allowing him to save aggressively towards his financial freedom.
Also, it’s worth pointing out that being a New Jersey resident and earning additional income that’s not connected to New York State will allow that part of your income to be taxed at lower New Jersey tax rates.
If I were deciding to move to NYC, I would spend some time understanding and thinking through these various scenarios, based on my lifestyle and preferences, run some calculations to make sure that living in NYC is worth the extra tax burden.
Additionally, since housing is the second largest expense after taxes, be mindful of setting your housing expenses as low as possible. Whatever you pay starting out will set a mental floor.
If you live in a $1,500/month shared apartment out of college, I bet that will be the lowest you’ll ever pay for housing for the rest of your life. Controlling your housing expenses will go a long way in building wealth over time.
After making the move across the Hudson River, there are some quality-of-life improvements I’ve come to appreciate: less traffic, a cleaner environment, and convenience to the airport for traveling. It is also much easier to own a car and go hiking and enjoy the beauty of the Adirondack Mountains.
Of course, there are minor annoyances. It’s definitely not the same as living in NYC, there might be delays for trains at night, or traffic to get into Manhattan on the weekend.
For me, however, it is a net lifestyle improvement with a higher quality of living and a lot of time saved. Although there’s a river to cross, it’s a fairly easy commute into Manhattan and even less travel time than folks living in Queens or Brooklyn who still have to pay NYC tax!
It’s allowed me to maximize my health, get ahead in my career, and pursue my goals in life, all within the same number of hours in a day!
You pay for the privilege to live in NYC. There is nothing wrong with that luxury as long as you understand and accept the opportunity cost of your decision.
For me, taking advantage of this tax-arbitrage and lifestyle opportunity was ultimately a slam-dunk decision that saved time.