Let's Talk Money (or: Training for A Year or More is Wicked 'Spensive)

Not very many folks blog about the financial aspect of being with State.  But our family has run into an interesting topic, so I've decided to talk about it. 


It's pretty... boring, actually.  No fun pictures for you, I'm afraid.  But since it's about money, maybe you'll find it interesting anyway.


Here's what you need to know in order to understand our family's financial dilemma du jour:


~  James was initially hired by State in 2008.  He trained all the way through to 2009.  His initial assignment was to Houston, Texas.  The housing market is pretty stable there.  Thus, we bought a house.  (And remodeled it.  Top to bottom.)


~  When he bid off the NOW list and got Chengdu, China, last month, we knew that getting Chengdu came with going to language school (Mandarin) for 44/45 weeks so that he would get a 2/2 in a super hard language.  BONUS!  Totally what we wanted.  SCORE!


~  However, the position he took also comes with lots and lots of additional, non-language training.  The different parts of his training, language and all, would be in excess of a year long.  Oops.  Bad financial things happen to you when you're in training for up to or over a year, as we are learning. 


When we were first told we'd gotten Chengdu (full story here), James' CDO told him that we would have to choose between being PCS (Permanent Change of Station) or TDY (I think it stands for Temporary Duty) during his more-than-a-year training.  Here's what those choices mean:

To PCS:

To "PCS" would mean that we would be Permanently Changed from Houston, Texas, to the Washington DC area.  As in: moved there.  Our stuff moved there, him transferred there on paper, the works.


Financially, to PCS would mean to give up our ability to be put in housing (like Oakwood) during training and to give up any per diem during that time, as well (except for the 60 days of housing and per diem during a domestic move).  It would mean that we were being assigned to Washington DC as though we lived there.  We would have to rent somewhere during his training, and that's a LOT of money around here.


The pros to PCSing, though, would be that we would be moving from one domestic assignment (Houston) to another (Washington DC), and since those two domestic posts are more than 50 miles away from each other, this triggers our ability to sell our Houston house and have State reimburse our closing costs. 

To TDY:

TDY is what almost everyone in training is doing.  They're staying at an Oakwood, or housing is otherwise covered, and they're getting per diem, and that's that.  Easy shmeezy, good stuff.


BUT:  listen up, folks.  For when you will be in training for a year or more, ALL FINANCIAL BENEFITS THAT THE GOVERNMENT SPENT ON YOU DURING TRAINING BECOMES TAXABLE AS THOUGH IT HAD BEEN INCOME FOR YOU.  As in: your "taxable income" on your W2 includes every penny the government spent on your housing or per diem as though it was income you earned.  Whoops! 


Also, if we chose to TDY instead of PCS, we would NOT get closing costs covered for our house.  So, it's a tradeoff.


So.


Yesterday afternoon, James' CDO emailed him and asked us what our choice was:  will it be PCS or TDY? 


So I freaked out and got on Facebook (as is my personal wont... love you, State ladies!), and emailed experienced people whom I knew were awake (HA!  You cannot escape, Jen!), and in general lost my blessed mind because this is a HUGE financial decision and it was time for the rubber to meet the road... the frying pan to leap into the fire... you get it.


When he came back from training yesterday evening, James (and I) grabbed a calculator, a lot of paper, a ruler, and the Regs and crunched some numbers. A  LOT of numbers.  And just because I'm a sucker for punishment, I will put up our pros/cons lists.  Because certainly, James and I will not be the only people in the world to whom this is happening (or will happen to): 

TDY Pros/Cons:

Pros:


No having to pay rent for while we're in training (HUGE consideration, but what is spent on our housing becomes our taxable income)


Per diem (for James only) for the year (which also becomes taxable income)

No income taxes to the state of Virginia

No losing the % difference in locality from between Texas and DC (Houston is higher)

No worries about where to live or where to rent (you go to an Oakwood and you're DONE)

Cons:


SUBSTANTIAL Federal income tax hit (and that's IN ADDITION to your normal taxes/SSI, etc., NOT INSTEAD of them), since the money State paid on your behalf for housing and/or per diem during your training becomes your own taxable income

Carrying the house in Texas during training and China (No, renting it out isn't an option.  We just remodeled the whole thing, and are terrified to rent it out.)

The Unknown:  The housing market may go up or down (it's pretty good right now).  A hurricane may hit.  The world may end, etc.

There's no way we'd ever be lucky enough to get posted to Houston again (and live in the house long term again).  Getting posted to Houston is like... winning the lottery (in a statistical sense.  The financial aspect is good, too).  If it happens to you, you're blessed by the bidding gods; it won't ever happen to you twice in one lifetime.

PCS  Pros/Cons:

Pros:


Get to sell the house in Houston and have closing costs reimbursed now, instead of four to seven years from now (whenever we have another domestic assignment)


Per diem for 60 days (not a year, like TDY), but for all 4 of us (not just James, like TDY), but at least it doesn't ultimately become taxable income

Get the $1,000 miscellaneous allowance for moving

Don't have to carry the Houston house financially or emotionally while in training or in China

Get to live with our own things for the year we're in training

More space for our family if we rent somewhere than if we live at an Oakwood (because, certainly, no matter what we rent, it would be larger than an Oakwood place.)

Cons:


Have to pay RENT during TRAINING (GAH!  Noooo! A HUGE amount of money!)


Smaller paycheck because DC locality is less than Houston

Smaller paycheck because VA has an income tax and Texas doesn't.  (Ugh.  This Florida/Texas family HATES state income taxes!)

~  ~  ~

In the end, if one does not own a house that one is hoping to sell and get closing costs for, going TDY is the better financial option.  The federal income tax hook is NOT large enough to negate paying RENT in DC for a YEAR.  (But it is VERY large!  And an unknown!)


(On the other hand, many people really, really want to live with their own things for that year of training.  Truth be told, James is sort of this way.  He misses having a mattress that is actually COMFORTABLE.  And so, that would tend to make PCSing be a better choice for some.  Because, can you put a price on a comfy mattress, a bigger place to live in for your children, or having your own dishes or holiday items?)


However, for us, to be able to sell the house and get our closing costs reimbursed... plus to not have to carry the house while we're in training or, long-term, while we're in China, made the PCS option a better one for us. 


Short-term, PCS is financially tough, but long-term, it's a better choice for us. 


Thus, when this current training class of James' is over (in the end of July), we will go back to Houston to primp the house, list the house, pack out, and move back here in September to start language training on a PCS basis. 


I hope this long, boring, financial post ends up benefiting someone out there!  


And if anyone owns a(n) (unfurnished, 3+ bedroom, 2+ bath) place really near FSI, and is looking for renters for about ten months or so (from about November of this year to fall of the next?), let me know.  We're all non-smokers and we don't own any pets.  :)

Comments

[Digger]

Here's another thought for you. Can you find a break in James' training where you can "go back" to Houston for even a week? So that the clock restarts on the year?

[bfiles]

oh man, this about gave me hives. So many of the financial decisions State people talk about are over my head! But I really appreciate you sharing it as I see that I'll have to get my head out of the sand and pay attention to this stuff. Thanks for breaking it down. Congrats on making a decision...

[Jill]

These are the exact same scenarios we had to look at when deciding whether to go TDY or PCS when Matt goes to Iraq...

It's NEVER a win/win situation... and one that often leads you to question if you made the right decision.

We too decided to PCS vs TDY. I totally understand why you did it too... Best of luck as you sell your place!

[Jen]

We went back and forth on the TDY vs. PCS thing,too. However, ISMA tipped the scales for us.

Oh, and happy to help and thanks :-)

[David L.]

One of the biggest thorns in my sides with the government and State Department is why local hires don't get a per diem, too.

[TG]

Thank you for writing all of this out. . . We aren't at this point (yet) but. . . so very helpful. (And, oh yeah. . . having FL be our home state for-ev-ver has made me shudder at the thought of state income taxes.)

[Camille]

Thank you, thank you, thank you! Nobody ever posts about this stuff and it is SO important. Just another reason why I love reading your blog :)

[cw]

thanks for posting this! we are waiting for the invite to A-100 but it is exactly this type of practical info that is helpful to FSOs and their families

[Daniela]

Yes, really good info here.

We are in a similar situation with a house in Fl that we'd like to sell before we go overseas in about a year. Ours is a little more complicated because there are some legal issues regarding the house and we can't sell it until those are settled but hopefully soon.

We were brand new when we moved here for training and I am wondering if State would help us with closing costs when we do get to selling the house. Do you happen to know?

And you are absolutely right, there are a lot of decisions that affect your finances in a big way. It's not trivial.

[Emily]

Okay, so I realize that this post is addressing far more important issues than what I am going to bring up, but hey, this is my comment.
The other thing that is expensive, everytime you move, you have to buy new cleaning supplies, condiments, and all the little things you think will be there when you get there and they are not. Like a kitchen table or a tub for the kids. A lot of expenses come up, and it can be a real bummer. But then you live somewhere for 2-3 years and you forget, and then you do it all over again.
I really hope that everything works out. I think a mattress can be an item of great importance. That and my favorite kitchen items.

[Sara Roy]

It's Friday and that means that the State Department Weekly Roundup is up and you're on it! Check it out here:

http://wifemommywoman.blogspot.com/2010/06/state-department-weekly-roundup.html

If I used your blog and photo and you want one or both of them removed, please let me know!

[TulipGirl]

You came up on the first page of google, as I was trying to figure out how to do our PCS travel voucher thingy. Sigh. Since I'd read this before, I knew it didn't have the info I needed, but had to click over to wave "hello!" anyway!

[Alison Crabtree]

Thank you for the post. I have one question do, seems that your home home state is TX for taxes purposes. If you sell your house you dont have a residence there anymore. Do you have to change your home state for taxes purposes? Do you keep some type of mailing address in TX for that purpose? This is our first assignment and we have FL as our state. My mother in law lives there. We have our mailing address there. If she sells her house dont know what we will have to do.
Any input is really appreciated..