Two-income families

[drinkme]

We have to pay income tax this year which is just awful since it seems EVERYONE I know got back huge refunds ($1000s). I know me working FT now has bumped us up to the next tax bracket, but I'm wondering if anyone knows at what point does it not make sense to keep on working?

I went on one of those 2nd income calculators on msn.com and it says my income is reduced from $40K to under $10K. That can't be right!!??? Does anyone have any words of wisdom for me?? I know I must not be looking at things properly. For example, I only have to work a couple of more years to get fully vested on my pension. That has to be worth something!

TIA

 

[AJRitz]

We have to pay income tax this year which is just awful since it seems EVERYONE I know got back huge refunds ($1000s). I know me working FT now has bumped us up to the next tax bracket, but I'm wondering if anyone knows at what point does it not make sense to keep on working?

I went on one of those 2nd income calculators on msn.com and it says my income is reduced from $40K to under $10K. That can't be right!!??? Does anyone have any words of wisdom for me?? I know I must not be looking at things properly. For example, I only have to work a couple of more years to get fully vested on my pension. That has to be worth something!

TIA

First, what exactly does the calculator at msn.com consider? Does it look only at income vs. tax bracket, or does it also include the average additional ancillary costs for two wage earners, like child care? If it includes everything, the first step is to ask yourself - once you took out all of the extra expenses involved in being a two-income family, would you realistically be able to cut $10,000/year out of your current household spending? If not, that extra $10k sounds worth it already.

Second, there is substantial value in being pension vested. There is also value in having a second source of health benefits. From your initial post, I'm assuming you rely on your husband's health benefits. But what if he were unexpectedly unemployed? Could you afford 110% of the total premium on his health benefits to cover your family via COBRA?

Third, given the choice, would you really give up ALL of the things that you pay for primarily because of being a two wage-earner household? There's value in at least part time daycare programs, in terms of developing socialization skills, etc. Would you really cut those out entirely? If not, the savings from not working are also reduced.

The point is that the question is more than a simple, "what's the dollar difference" question.

Oh - and remember - owing taxes means that you figured your withholding correctly. If you get a big refund, you've been giving the government an interest-free loan all year.

 

[angel23321]

I must say this, just because someone is getting back $1,000's is not necessarily a good thing. They odviously are having too much taken out of their paycheck and they should cut back on how much comes out. They are giving the government a free loan with their own money. Every year, we try to make it so we are only getting back/owing a couple hundred which varies on capital losses/gains, donations, and other variables.

Working full time probably has bumped you into the next bracket but did you change your W-4 when you started full time? If you didn't make changes and you had changes to your income or filing status, that is why you owe not necessarily because you're in a new tax bracket. Are you sure you were bumped into the next bracket?

Just some ideas to think about. Also if your job is contributing to a pension or a 401K, that is like "free" money and adds value to your salary. Only you can deceide if it's worth it in the long run. I love to work, love my job and it enables us to do things (like go to Disney) when we want to. So for me, even if the bottom line isn't "that far ahead", it's worth it to me.

 

[WDW LifeLong Fan]

I must say this, just because someone is getting back $1,000's is not necessarily a good thing. They odviously are having too much taken out of their paycheck and they should cut back on how much comes out. They are giving the government a free loan with their own money..........................

 

[disykat]

My job makes us end up owing more taxes on April 15th because it screws up our withholding. We need to reduce dh's expemptions and get more held out of his paychecks if that bothers us.

Look at how much you actually PAY in taxes (for the year, I'm not talking about April 15th) with your income added in. Then look at the tax table and figure out how much you would pay without your income added in. That should give you a ballpark figure to work with as far as knowing how much your income is adding to your tax burden.

 

[JamesMom]

I am one of the fortunate ones who can financially stay home with my children: DS7 and special needs DS4. I also enjoy staying at home. My family appreciates my unique contribution.

However, we have considered me going back to work when our youngest is in school full-time. But financially for us, it doesn't make sense.

My husbands income (after 401k, insurance, etc) is on the cusp of the 25% bracket. If I worked we would be there - so 25 cents of every $1 would be paid in federal income tax. Add medicare and FICA taxes I am now only bringing home 65 cents out of every $1.
I would still need after school care and transports - that would be $99 per child per week - so lop off another $800 a month after taxes. Plus the breaks/days off/sick days would be an increased fee.
Then I would need to send my children to summer camp for 11 weeks at the tune of $140 per child per week , so there goes another $3000 a year.

Hmm. After a 35% right off the top for taxes and another $11,000 for childcare...
If I make $50,000 a year then
taxes on $45,000 (child care credit) = $16,000
Take home = $34,000
Child Care = $11,000 + clothing, maid, eat out and transport costs $3,000 ($250 a month)
Now my take home is = 20,000
Less than $2,000 a month to be away from my children for 50 hours a week.

Not worth it in our household.

Some family NEED that two grand and God bless y'all. It's a hard choice.

I read that you are couple of ways from your pension --- that is an extremely rare comodity. If you think the program won't go broke by they time you need it, then I would tough it out and get fully vested.

 

[tiredsigh]

This year, we owed. DH and I make roughly the same amount. Plus, I have law school loans to pay off (way early if I have anything to do with it). I would have loved to stay home with my kids, but I like the security of having a job.

If I were going to be vested in a few years, I would stick it out. That alone is worth a lot.

I also firmly believe in making sure you always have a plan B. If my DH were to get laid off tomorrow, I would be able to support my kids. $40,000 a year is not going to put you up for life, but it will put food on the table if your DH is laid off.