I make $30,000 a year and have no health insurance benefits or retirement plan benefits at my current job. I have a flexible spending account, to which I contribute $5,000 for dependent care and $2,160 for health reimbursement, yearly.
Our childcare costs are $765 per month.
We would like to know how to figure how much I am actually bringing home after subtracting any additional taxes my working is causing as well as daycare. We currently itemize deductions on our tax return. We purchased a home in April 2003 and have a monthly payment of $1,380. We also have about $450 of student loan interest we are able to write off in addition to daycare expenses over $5,000. Can you shed some light on this for us?
---E.B., by e-mail
A. Your real take-home pay probably doesn't amount to much. And over your lifetime the deal you're getting is even worse.
But giving an exact figure would require some very precise calculation and some of your information worries me. I doubt, for instance, that your husband makes $52,000 but has $49,000 in take-home pay.
Fortunately, we can make some reasonable estimates. We can concentrate on your income and work backwards:
First, the employment tax takes 7.65 percent off the top of your income. That's $2,295. It gets you little or nothing in future retirement benefits since you can collect a benefit based on your husbands' higher earnings record.
Second, since your income will be 'taken off the top' your income taxes will decline by the marginal tax rate on the $25,000 of income available after the $5,000 dependent care payment to the flexible spending account. With the 25 percent tax bracket beginning at $58,100 this year and income below that taxed at 15 percent, I'll guess your average tax rate would be about 20 percent. That takes another $5,000 off the top.
The next step is to subtract the out-of-pocket money for childcare that you'll no longer pay, about $9,180 a year.
Subtract those three figures and you've got $13,525 "left" from your $30,000 job. Some of the dollars remaining go to the inevitable costs of getting to work, additional clothing, clothing care, work lunches, etc. You'll have to estimate those.
And don't forget the productivity gained by being a full time at-home parent, managing your home and family. With only one earners' work schedule to deal with, you'll probably save a good deal of money on more meals at home and fewer meals out, etc. Unless you have a career that you love--- or have a phobia about becoming a "Leave It To Beaver" family--- having one full-time parent can do a lot for your family.
Laurence J. Kotlikoff, the Boston University economist who coauthored "The Coming Generational Storm: What You Need to Know about America's Economic Future" (MIT Press, $27.95) with me, examined this question in a generational accounting context last year. He found that the second worker in a couple faces a true lifetime tax rate that is devastatingly high. One of the main reasons your lifetime tax rate is higher than your current out-of-pocket tax rate is what I mentioned earlier--- the second worker pays full employment taxes but gains little or nothing in retirement benefits. The question is covered in our book. You can find the actual study--- "Does It Pay Both Spouses To Work?"--- on the National Center for Policy Analysis website. (www.ncpa.org/pub, publication 260).
Finally, to ward off the inevitable accusations of sexism, let me note that the numbers work the same way in the 40 percent of families where women earn more than their husbands. It will work just as well for those who decide to become "Mr. Mom."
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