Your boss has asked you to transfer to an office in another state. What do you do?
Let’s assume that the new position will get you an increase of $10,000 a year in salary. Your boss says that this will be a “good move” for your future. You have the weekend to decide. Relocating is considered on of the most stressful events that can happen to a family. In fact, it is considered on of the toughest events on a marriage — ranking right up there with having a baby and the empty nest syndrome. Changing jobs, which often happens when you are moving, is also a really stressful situation. You’re probably already stressing before even deciding yes or no.
First of all, you can’t put any math or business to your emotions. They are what they are. But realize that change is good. And that it is perfectly normal to look forward to something, yet be worried about it as well.
The financial aspect of it is easy to quantify.
You will probably be given a compensation package for the move. This will likely be a general package that takes no account of your personal situation. So you will need to look at it to see that it works for you. The after-tax cash flow of the relocation should at least be zero. You shouldn’t lose money to do this.
The first thing to consider is the cost of living in the area you would be moving. Given that you will receive an increase in salary, chances are the cost of living is higher. Hopefully it isn’t — which means more dough in your pocket. But if it is, how much higher is it?
Will housing cost you the same? Can you upgrade or will you be forced to downgrade?
While you are looking at the area, perhaps you should do a quick bit of detective work. What is the area like? Is the crime rate high? Are the schools good? Are property and personal taxes higher or lower? Will your income taxes change? Will social security taxes change? Can your spouse find work in the area?
One way to do this detective work is to sit down with your spouse and write down all of the questions that pop into your head. Then get on the internet and try to find the answers. First thing Monday morning, you might make a phone call or two to area real estate brokers and even the chamber of commerce for more information.
You should also look at your vehicle costs. Your commuting distances might change. Your auto insurance rates could change. If you are moving farther away from friends and family, you will have added driving costs around the holidays. Will you have free parking or the use of a company car?
You’ll need to ask your employer if there will be any changes in job benefits due to the relocation. You want to look at medical insurance, life insurance, retirement plans and day care. One of the major changes will be housing costs. You want to compare apples to apples here. Look at the same size house in the same type of neighborhood when looking at real estate costs. Consider what the market is like in the area. You might have to rent an apartment or home for a while until you find the right home.
Remember that your interest rate might change on your mortgage as you take a new one. Plus you might incur federal and state capital gains taxes. If you do, ask that your employer reimburse you for the tax, since the only reason you are selling the home and imposing the tax is the relocation. If you have investment properties, you might have to sell these as well.
You should also look at the time frame and cost of moving your household. Include the travel expenses and meals and lodging. You will have house hunting trips before the move, real estate agent fees, legal fees to buy and sell, a new interest rate, points, closing costs and other expenses. Wow. It seems like a lot. But these are all one-time expenses. You should be reimbursed for the majority of these expenses by your employer.
When it comes to reimbursement, you do have to consider your taxes. If you are reimbursed for non-deductible expenses, the reimbursement will be taxed. The employer should reimburse you for the federal, state, local and social security tax impact on the portion of the reimbursement that is non-deductible. This is called a tax gross up payment. This is also taxable, but can be figured out through calculations. There are a lot of figures to consider when facing a relocation. The key is to figure all of the numbers and see if it makes sense for you. Then deal with the emotional.
