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The Terrible Economics of Dual Income Print E-mail
Personal Finance - Taxes
Written by Omie Ismail   
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The Terrible Economics of Dual Income
Dual Income Tax Rates
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Many families understand all too well the burden of having two working parents. Any debate over whether one parent should stay home needs to include an analysis of tax implications. Of course, some households don't have the luxury of engaging in this debate - two paychecks are needed to support the family and they simply can't get by without the extra income. But federal and state tax laws penalize dual income households at such a high rate that when the additional costs of commuting, childcare, and work-related expenses are factored in, many families might discover that the second income is just not worth the hassle.

There are non-monetary reasons and long term economic considerations that factor into this debate but are beyond the scope of this article. There are certainly advantages of dual income families. The spouse that continues to work may have a career that requires working at least part time during early child years. Some people simply enjoy working and can't handle the demands of 24/7 parenting chores. Also, there is always the unspoken fear of a divorce or breakup that compels many women to stay engaged in their careers.

Work experience counts and re-entering the job market after years of absence is difficult and often obliges you to resume climbing the career ladder from the first step. The second job may provide better healthcare than the primary one and there may be long term consequences for leaving the workforce - even for a few years. Even in these uncertain economic times, the probability of both parents losing their job is still remote. With only one parent working, all the bets are placed on one work horse.

Still, when it comes down to household cash flow, the short-term economics of both parents working are driven primarily by tax policy and the ever increasing cost of childcare.



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Lauren  - Another vote for dual income |2012-01-11 08:49:27
One thing I noticed no one mentioned is income potential. If you earn $50k now, and expect to continue to earn $50k throughout your working years, maybe single income is the best option. However, if you earn $50K now but your potential earnings in the future are higher as you climb the career ladder, it greatly strengthens the case for two-income homes. Even if you are able to live on one income, wouldn't it be great to put that additional money towards saving for college or retirement? For the health of the family, having wage earners take turns being the primary parent has merit: to allow children to develop close bonds with both parents and allow both parents to contribute to the family in both roles. You'd never have a spouse complain that the other didn't appreciate their contributions to the family.
Caleb  - Scots your an Idiot! |2011-06-28 20:50:13
Scott please get off your high horse and join those of us just trying to make it. Pay taxes on baby sitting... Pst, please! They rape us on our taxes, keep what you can!
Scott  - Bad Tax Advice |2010-11-06 21:26:00
Be careful what kind of advice you're giving:

"Furthermore, additional untaxed income can me made providing services for other working parents by babysitting or carpooling."

NOTE: This income is only "untaxed" if you fail to report it, which is illegal tax evasion.
annamarie  - Business Clothes |2010-02-13 05:51:18
This is a great article. I hope many people find it as they consider the cost of the second income, especially if they have young children at home. (Of course we should have quality day care affordable for everyone, but that's another issue.)

You've left out another category of costs - dressing up for work. In most cases, a person going to work has to maintain a wardrobe appropriate to the job. Also hair cuts and dry cleaning.

It's just another cost of a regular job.
Omiewon  - Dry Cleaning! |2010-02-13 09:27:43
AnnaMarie,
Great point. People will often spend $50 a week just on drycleaning if they need to wear suits in addition to the actual wardrobe costs of maybe two thousand or more a year. $50 a week is is $2,500 a year which is more like $3,500 gross income. So nearly $5k just to outfit a professional. Thanks for the comment. I like the sharinghousing.com site. Shared housing is much less expensive.
Evelyn  - Ridiculous! |2010-08-24 06:40:51
I have worked in a professional environment for 20 years, and have never spent more than $1000 per year on wardrobe, including dry cleaning. I buy 1 new suit a year, for about $200 (on sale). I buy maybe 3-4 tops, and maybe 2 coordinating separates (pants skirts) per year, for another $200. Shoes, $150, which is 1 new pair and re-build of a couple existing pairs. Drycleaning, maybe $100 per year. Haircuts, makeup, hose etc. makes up the rest. Just because you're working, doesn't mean you go crazy at designer boutiques. Similarly, just because you're a SAHM, doesn't mean you dress in rags and sweats all the time, and never do anything with your hair - that's a ticket to the divorce court.
george |2010-04-26 15:45:15
you wouldn't get a haircut if you were a stay at home mom??
MGM |2009-11-07 05:14:04
My wife and I are looking at this scenario right now. She has a side business and we are trying to figure out how much side work revenue we will need for her to quit her full time job so she can spend more time with the kids. This article certainly puts things into perspective and offers a nice checklist of things to look at when doing this analysis. I'll be talking to my financial advisor soon to get into the details of what we might be able to do. Thanks again and keep this useful info. coming!
Omiewon  - Thanks for the Praise |2009-11-07 07:24:39
MGM, thanks. This article has gotten the most attention of all of our articles. When you think about that side business remember it can pay for those cell phone bills, Internet, etc. Anything that helps your wife run that business. I think almost every family ought to have a legitimate side business. You also never know, I know a guy who did this whose wife was the big bread winner. A year later, the wife quits her job and joins him because he is making 3 times as much on what should have been a nice side business.
From having created and grown several businesses, I can say that the benefit for the government on a whole is huge. It iss all those little businesses that are really driving the growth in America. Although many of those home office operations stay home offices, some of them grow into businesses with many employees. Good luck with your endeavor.
 
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