The U.S. Tax Code Punishes Second Incomes; Other Costs May Wipe Out Their Benefit
Anne-Marie Slaughter’s piece in The Atlantic, “Women Still Can’t Have it All,” has stirred a great debate about and among feminists in America.
As a man, it would be inappropriate or at least insensitive for me to weigh in on the issues facing women in the workplace. I will, note, however, that the issue is even more troubling for many women in the Church, who often report feeling pressure to live up to even higher standards.
Taxes Punish Second Incomes
For many women I’ve talked to over the years, the primary motivation for work is financial. There is a reality in our U.S. tax code that may mean that many people, especially women who would rather be at home with their kids, are working effectively for free or at least contributing much less to their household budgets than they believe.
Most people think that their take home pay is accurately reflected by the net paycheck stub that they receive every few weeks from their employer. Your net pay has surprising little to do with how much money you actually make on an after tax basis.
Preparing a tax return won’t give you a much clearer perspective on actual after-tax incomes from your individual employment if there are other sources of income—say from your spouse—being lumped in with your income. That is precisely why there are people working virtually for free today.
In a hypothetical home with a household income of $150,000 (I recognize that this may not be a typical home) resulting in Social Security and income taxes total about 25% of that income. Let’s presume for a moment that the father, let’s call him Bill, in this home earns $120,000 as a professional of some sort. At the same time, the mother, let’s call her Betty, earns $30,000 working in retail.
(Let me note that many women earn more than their husbands; this example is an extreme example intended to help clarify a feature in the U.S. tax code and is not intended to be representative of women’s economic worth or typical earnings compared with men. Furthermore, if the gender roles are reversed the tax rules apply equally. I’ve chosen to use a woman with a lower income in this example because the Brethren have indicated that it is the father’s role to provide.)
In our hypothetical example it would be easy to assume that Betty brings home 75% of her gross salary or $22,500. Some, based on a misapplication of the tax code, might assume she brings home even more of her low salary and that Bill is really paying the big dollars in tax.
In fact, the IRS and the state in which Betty lives (most states tax income) will take about 38% to cover Social Security plus state and federal income taxes. In contrast, Bill’s bill for taxes will be only about 19% of his income. This analysis presumes that Bill’s income is not optional for the household, so his income should be counted first. Betty’s income is optional and should be added second. By applying this logic, it is clear that her income is being taxed much more heavily than his.
Of course, Betty will also pay tithing of $3,000 on her income. This might go without saying, but let’s not forget to include that in our analysis.
If her income also requires her to own a car to get to and from work, she might easily be spending $10,000 per year to own and operate that vehicle. If there are daycare costs required as well, another $5,000 could easily be deducted (some of that may reduce taxes, fortunately). If working also requires a larger clothing budget, more meals out both for lunch when she’s out and for dinner when the family gets home to find no one has cooked dinner, another deduction of $5,000 may be apt.
After we deduct taxes of 38% plus tithing of 10% and subtract expenses of $20,000 that are directly attributable to her being employed, we recognize that her job really doesn’t generate any net contribution to the household budget—in fact, it may be costing the family a few thousand dollars per year.
Every real life situation is different. If the combined household income is below $50,000 per year, and one or both spouses are commuting using public transportation, it is far more likely that both incomes contribute meaningfully to the household budget. Furthermore, any income in excess of $50,000 is likely to contribute meaningfully to the household budget. Employment opportunities at home that don’t require a new car, fancy clothes, long commutes, are also more likely to contribute something.
But that still leaves countless people, most often women, working outside the home at jobs that they don’t like because they think that they are contributing meaningfully to the household budget, when in fact they are not.
If you are unsure if your income is contributing to your household budget, talk to your tax accountant to determine the actual tax burden of your job and talk to your spouse about the expenses that could be eliminated if you weren’t working. You may find that you really can’t afford to keep working!