Here's Why High Earners Are Abandoning New York and California

Could you save money by relocating to a different state?

Data from the IRS shows that the country's highest earners are moving away from New York and California. Some are heading to states with lower state taxes. But taxes aren't the only reason for the shift. So how many people have left these popular states, what's driving them away, and should you follow suit?

New York and California have lost almost 40,000 high earners

The IRS's top income bracket includes anyone who earns $200,000 or more, and its data shows that almost a quarter of them live in California and New York. Both states rank in the top three nationwide in terms of the number of high-wage residents. Indeed, in spite of the shrinkage, there are still over 2 million high-earning households in California and New York combined.

California's exodus

Over 36,000 households earning the big bucks left California between 2019 and 2020. This was offset by around 17,500 arrivals. Overall, that means there are now more than 19,000 fewer high-income families in the Golden State. While that is a lot of departures, it still represents only 1.35% of the total number of the state's top earners.

New York's exodus

New York faces an even bigger struggle to keep its top earners. Almost 30,000 high-earning households left the state and only around 9,600 arrived -- a net loss of almost 20,000. That's about 3% of New York's top filers.

Here's a summary of the IRS data on high-earning households in California and New York between 2019 and 2020:

Why top earners are abandoning California and New York

There are various reasons why top earners are moving out of California and New York, but high tax rates in both states certainly play a role. According to the Tax Foundation, California residents pay as much as 13.3%, and New York residents could pay as much as 10.9%. The Manhattan Institute said that New York City’s highest earners pay the highest combined state and local income taxes in the U.S.

In contrast, states like Florida and Texas, which do not charge state income tax, are attracting more and more top-dollar workers. Between 2019 and 2020, Florida saw a net gain of over 20,000 high earners, while Texas gained over 5,000.

Another factor is that international immigration in New York City is at about a quarter of the level it was before the pandemic, according to the New York Times. Added to which, sadly the death rate was much higher than in typical years. In California, several big companies, such as Oracle, Palantir and Hewlett-Packard Enterprise are moving their operations -- and their people -- elsewhere.

There are other pandemic-related issues at play, too. Remote work is increasingly feasible, meaning many workers no longer have to live within an easy commute of their office. Not only is urban life not as necessary as it once was, but for some people, it has also lost its appeal. The option to work remotely for at least part of the week makes it possible to explore different ways of living. All these things combined means both high income and other Americans are considering relocation.

Bottom line

Some experts argue that the recent migration figures are a blip rather than a trend, particularly since New York and California are still home to more billionaires than anywhere else in the country. Nonetheless, if you're trying to reduce your cost of living, moving to a different state or city might help. But there are a lot of factors to consider. Here are just a few of them:

• Moving costs: If you're moving to reduce your cost of living, work out how long you'll have to stay in your new place to balance out those extra costs. Let's say it costs you $5,000 to move, and the shift will shave $500 a month off your costs. You'll need to be there for at least 10 months before the move pays off.
• Healthcare: Your current health insurance may not work in a new state, so check out what options are available and what it will cost in the state where you might relocate.
• Work: If you're planning to keep your current job and work remotely, it's probably a good idea to make sure your employer is on board. You don't want to move to another state only to find you're required in the office full time. If you hope to find a new job, investigate the job market and what opportunities might be available.
• Schools: If you have children, there are a host of extra considerations. For example, where might they go to school and how family-friendly is your new potential home?
• Housing costs: House prices, rental costs, and even mortgage rates can vary wildly depending on where you live. Use a cost of living calculator to find out if the locations you're considering really will save you money.

Moving out of state can be a big upheaval, particularly if you currently live near close friends and family. You might be able to dramatically slash your living expenses, but you may also find some savings get outweighed by new and unexpected costs. The more time you spend visiting and researching your new location, the more likely any move will be rewarding for both your bank account and your personal life.