Meet Marcel
Marcel is in his first job after college, working at City Center Bank as a teller.
He is not married, nor does he have any dependents
He will be 23 on Jan 1 of the current year
Marcel’s wages (regularly taxed income) is $35,000

Meet Stephanie
Stephanie has been working at City Center Bank for 5 years. She is now an assistant manager.
She is not married, nor does she have any dependents
She will be 28 on Jan 1 of the current year
Stephanie’s wages (regularly taxed income) is $50,000

Neither has withheld any money towards federal or state taxes, and has no unemployment income1
Neither is being claimed as a dependent by their parents or anyone else
Neither contributes to a 401(k) or IRA
Both will use the standard deduction of $12,200

1 - Most people have money withheld from each paycheck to avoid paying a huge bill at the end of every year. We’re assuming no withholdings to illustrate the total amount in taxes paid throughout the year.

**Note - For this portion of the activity, we are only calculating Marcel and Stephanie’s federal taxes. We will tackle state taxes in the next part.

Marcel
Stephanie
Using Nerdwallet Federal Income Tax Calculator, what is the estimate for much this individual owes in taxes?

2. What is this individual’s taxable income?

3. What is this individual’s effective tax rate?

Why are Marcel’s and Stephanie’s taxable incomes less than their annual salaries?

What is the difference in their tax burdens?

Part II: What State You Live In
Another factor that greatly affects your taxes is the state you live in. Different states have different tax rates for a variety of taxes. In this activity, we will focus exclusively on income tax rates.

To do this, we are going to use the State Tax Calculator. Follow these directions:
Find the correct state and click the salary value you want to see the income tax for.
Under the “Yearly” column, find the value for “[State Name] State Income Tax”

Marcel
Stephanie
First, let’s assume that Marcel lives in California.

How much would Marcel pay in state income tax?

Now, what if Marcel lived in Oregon instead?
How much would Marcel now pay in state income tax?

How much more is Marcel paying if he lives in Oregon? (Federal taxes are the same in each state)

What percentage of his salary is Marcel sacrificing if he lives in Oregon instead of California?
(State tax difference/$35,000)*100

First, what if Stephanie lives in California?

How much would Stephanie pay in state income tax?

Now, what if Stephanie lived in Oregon instead?
How much would Stephanie now pay in state income tax?

How much more is Stephanie paying if she lives in Oregon?

What percentage of her salary is Stephanie sacrificing if she lives in Oregon instead of California?
(State tax difference/$50,000)*100

Was the impact greater for Marcel or Stephanie? What does that tell you about who is affected more by states with higher taxes, the rich or the poor?

Part III: The Cost of Living
While taxes vary by state, another factor to keep in mind is cost of living, defined as “the amount of money needed to sustain a certain level of living.” It includes things like the cost of housing, food, transportation, and more.

In this activity, let’s compare how costs vary between different locations using NerdWallet's Cost of Living Calculator. To compare cost of living:
Input one location in the “I currently live in” box
Input the other location in the “I want to live in” box
Enter your current income

Let’s use Marcel as our test case.
Let’s say that Marcel was trying to see the difference between living in San Francisco, CA and Portland, OR. Use the Cost of Living Calculator to determine the price of a few items in each place and the difference in costs. Remember, he makes $35,000/year.
Product Cost
San Francisco, CA
Portland, OR
Difference
2-Bed Apt. Rent

Gasoline

Dozen Eggs

Gallon of Milk

Movie ticket

Which city is more expensive to live in?

At the top of the page, you see two sentences that describe the “Equivalent income in the city you are moving to” and the “percentage decrease you can take in your salary to still maintain your standard of living”. What do these two sentences mean?

What kind of place would you prefer to live in if you had to choose: a state with zero/low state income tax or an area with a low cost of living? Why?