Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Author: mlk58 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120812  
Subject: Tax rates: is it worth it to work? Date: 3/24/2001 1:06 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I have heard people say it's not worth it for the wife to go to work, because "it will just raise our tax bracket." The implication is that having extra income coming in could actually cost the family money overall because of higher taxes.

This seems wrong to me. Isn't it the case that higher tax rates only apply to marginal income? So if husband makes $50,000 and is taxed at, say 33%, and wife makes $25,000 and raises the couple's marginal tax rate to 38% or whatever, the first $50,000 will continue to be taxed at 33% and only the additional income will be taxed at the higher rate. So the extra income will definitely benefit the family. But I have heard lots of people say that the extra income will cause ALL the income to be taxed at a higher rate.

Am I right?

Can you even understand my question?

Thanks for any light you can shed on this.

Print the post Back To Top
Author: RheS Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48923 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 1:21 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
mlk58 wants to know:

"I have heard people say it's not worth it for the wife to go to work, because "it will just raise our tax bracket." The implication is that having extra income coming in could actually cost the family money overall because of higher taxes."

"This seems wrong to me. Isn't it the case that higher tax rates only apply to marginal income? So if husband makes $50,000 and is taxed at, say 33%, and wife makes $25,000 and raises the couple's marginal tax rate to 38% or whatever, the first $50,000 will continue to be taxed at 33% and only the additional income will be taxed at the higher rate. So the extra income will definitely benefit the family. But I have heard lots of people say that the extra income will cause ALL the income to be taxed at a higher rate."

You're right, of course. And the only explanation for the confusion is that, in general, people are idiots. This must be one of those urban legends, or something!

Actually, there are a few tax-related benefits of having a lower income that are lost when you have a higher income... like being able to contribute to a Roth IRA... but they aren't so exciting that you should pass up earning income to have them.


Fool On!

Dick Smith

Print the post Back To Top
Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48924 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 1:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
I have heard people say it's not worth it for the wife to go to work, because "it will just raise our tax bracket." The implication is that having extra income coming in could actually cost the family money overall because of higher taxes.

This seems wrong to me. Isn't it the case that higher tax rates only apply to marginal income? So if husband makes $50,000 and is taxed at, say 33%, and wife makes $25,000 and raises the couple's marginal tax rate to 38% or whatever, the first $50,000 will continue to be taxed at 33% and only the additional income will be taxed at the higher rate. So the extra income will definitely benefit the family. But I have heard lots of people say that the extra income will cause ALL the income to be taxed at a higher rate.

Am I right?


Everbody has a point, and no one is 100% right. Let's assume for discussion that the primary earner of the couple makes more than the total of the couple's personal exemptions and itemized or standard deduction. The second earner's entire income is subject to the marginal rate, and if that income raises the bracket, the latter dollars will be taxed at the higher marginal rate.

Thus, the effective tax rate (tax / income) is much higher for the second earner than for the first. You also need to include the effect of Social Security and Medicare taxes, day care, commuting, clothing, and all the other expenses of having a job.

The bottom line is that a second income doesn't yield anything near what it looks like on the surface.

Phil Marti
VITA Volunteer

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48925 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 1:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
An Op-Ed article in the NY Times today, March 24, 2001, by Ann Crittenden, advocates taxing everybody as individuals, just as was done up to (I think) 1948. I personally agree with that.

However, she quotes a statistic to bolster her argument: that 38% of married couples paid more Federal income tax in 1999, than they would have if they were able to file as individuals.

Well, I have a Ph.D. in applied mathematics and I like to think I know something about arithmetic. If the statistic is about married filing jointly, then that also says that 62% of married couples paid less Federal income tax than they would have, if they filed as individuals.

There are plenty of oxen to be gored, and there is no one answer to make everybody happy. Then there are the inevitable complications, such as, if all file as individuals, then who gets the exemption for dependants and the child care credit.

Print the post Back To Top
Author: JohnMcCain Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48927 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 5:02 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
JABoa wrote:

<<I have a Ph.D. in applied mathematics>>

Do you teach at MIT perhaps?

Mr McCain

Print the post Back To Top
Author: eslovick Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48934 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 6:06 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I have heard lots of people say that the extra income will cause ALL the income to be taxed at a higher rate.



They are wrong.

You are right. It is marginal, and will not pull all your income into the new bracket.
I actually had an AmEx Financial Advisor try to explain to me that all my income would be in the new bracket. Wrong!

Beth

Print the post Back To Top
Author: ogrecat Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48936 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 7:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Ann Crittendon thinks middle class women should be paid by the government ((taxpayers) to stay home and raise children. She also thinks these women should get free lifetime health care, and hiring preference when they go back to work.

Print the post Back To Top
Author: eslovick Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48937 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/24/2001 7:17 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Ann Crittendon thinks middle class women should be paid by the government ((taxpayers) to stay home and raise children. She also thinks these women should get free lifetime health care, and hiring preference when they go back to work.

Everyone is entitled to their opinion. I don't believe in paying women to stay home and have kids. That was called Welfare, and we are still trying to get rid of that.
I believe everyone should have free lifetime health care, but I don't think there is any way to pay for it.
And I believe that everyone should have a hiring preference, but then it wouldn't be a preference, would it.

Free isn't free it alway costs us (taxpayers) a lot.

I also don't believe in the current reparations that they are talking about for the African-Americans, where they each get a check for a million dollars, again paid for by us (taxpayers).

And I am a Berkeley bleeding heart liberal.

Beth

Print the post Back To Top
Author: acm4tax Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48961 of 120812
Subject: Re: Tax rates: is it worth it to work? Date: 3/25/2001 6:37 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I always tell clients that the government doesn't take away ALL your money when the second income is added. But you do have to work the numbers to make sure the proper taxes are withheld. If you look at Form W-4, after you claim S or M and the number of exemptions, there is a line to authorize the employer to withhold an additional amount. Everyone's tax situation is different, thus the flexibility of the
W-4 to accomodate differing tax situations.

Besides the money factor, there is the psychological one. To be a stay at home homemaker and mom/dad is a choice for some. For others, dispite the additional financial costs of having a job - clothing, transportation, daycare, there is a need to feel personally fulfilled as a human being. Having outside the home contact with other people is necessary for personal sanity for many, and to have a job fulfills this need. Volunteer work may do the trick too, but the added bonus of receiving a paycheck makes it worthwhile to others. Different strokes for different folks.



Print the post Back To Top
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Advertisement