Tag Archives: taxes

6 Biggest Money Mistakes Mothers Make

Tonight I’ll be leading the chapter meeting for our local Mothers & More chapter on “The 6 Biggest Money Mistakes Mothers Make.” Join us and bring a long a new or gently used purse for our donation to Elizabeth house! Here are the “mistakes” I’ll be discussing with moms tonight.

1. Making “To Work or Not To Work” Decisions Based Solely on Short-Term Family Budget

When mothers wrestle with questions about whether to stay employed or not, or whether to scale back employment to make room for family, the conversation usually centers on whether the current family budget can afford those changes. Can we still pay the mortgage or rent? Could we trim expenses to make up for lost income?

Too often, all the longer-term implications are left out. How will this decision impact my ability to save for retirement? My Social Security benefits? How will this decision impact my future earning potential?

Whenever faced with an employment or financial decision, ask yourself:

How will this decision affect the short- AND long-term finances of my family?

How will this decision affect my own short- AND long-term financial security?

2. Falling Into the “Can I make enough to pay for childcare?” Trap

When our daughter was born, my husband had just started his second year at a law firm and I had just been laid off from a part-time job. We sat down together to decide whether I should look for a new job or not. Estimating the income we thought I could make in a job with reasonable hours, we subtracted taxes, childcare, and work expenses. There wasn’t much left. Working for pay didn’t pay much. So we decided I wouldn’t, because we could afford for me not to.

Three different things lead many mothers into this trap. Continue reading

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Filed under Assumptions about Mothers, Career-Life Fit, Economy, Money, Motherhood, Remodeling Motherhood, Remodeling Motherhood Tips, stereotypes

Tax Day Question: Can I Make Enough to Pay for Childcare?

When our daughter was born, my husband had just started his second year at a law firm and I had just been laid off from a part-time job. We sat down together to decide whether I should look for a new job or not. The question we asked ourselves was, “Could I make enough to pay for childcare?” If not, we reasoned, it would make sense for me to take care of our baby myself.

Little did we know that the question had nothing to do with the cost of childcare and everything to do with tax policy.

You see, before World War II, the United States used an income tax system of separate filing for married couples in which tax rates applied to each spouse’s income separately.* As Ed McCaffery, author of Taxing Women, explains in his book, when the war ended and the costs of war went away, Congress saw an opportunity to reduce taxes. They did it by eliminating separate filing and replacing it with mandatory joint filing for couples. At the time, Congress also had an interest in wanting families to return to normal. In other words, they wanted mothers who had entered the workforce during the war to go back home. Joint filing would encourage them to do just that. As the legislative counsel of the treasury at the time remarked, “Wives need not continue to master the details of . . . business, but may turn . . . to the pursuit of homemaking.”

Joint filing introduced what McCaffery calls the “secondary earner bias.” The one who earns less, even today usually the woman, will be taxed more, which acts as a powerful but unseen disincentive for her to be employed.

Sue Hill Zamparelli for "This is Not How I Thought It Would Be"

How does it work? Married couples filing jointly are required to combine their incomes, no matter who earns what. However, the money doesn’t go into a common pool that is all taxed at the same rate.  As my friend Kimberly Tso explains in her blog post at The Two Penny Project, “Our federal income tax system uses graduated marginal rates. This is how to think about it: Imagine each dollar that you earn is stacked one on top of the other. Next, picture a large wedding cake next to the stack of dollar bills. Each tier of the cake (called the tax bracket) has a corresponding tax rate that increases as you go up each tier. …You only incur the higher tax rate if your stack of bills reaches that layer.” (See picture for example using hypothetical tax rates.) The policy goal of taxing the top layers more is for individuals who earn more to pay a higher percentage of their income in taxes compared to those who earn less.

For a couple, combining the incomes into one stack and then applying increasing rates to each layer has another effect—the secondary earner bias. When my husband and I faced the question of whether I should find a job or not, we thought of his job and his income as primary because he already had a job and he earned more. So we also thought of his income as first in the stack—where it would get taxed at lower rates. Continue reading

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Filed under Economy, Marriage, Money, Motherhood, Remodeling Motherhood