When it comes to taxes, having two incomes isn't always pretty.
Every spring, I spend hours filling out tax forms, pouring over deductions and credits. Then, I hit the 'send' button at 9 p.m. on April 15, still a hand-wringing worrywart. But while obsessing over the accuracy of every number, I, like many families, often miss the big picture.
I'm part of that 57 percent of U.S. households where both partners work. When it comes to taxes, having two incomes is not pretty. That's why now is the time to look at how much you're actually profiting from that second income, because making more money doesn't always pay.
The tax code has an "especially ravenous appetite for second incomes," said Denise Topolnicki, author of "How to Raise a Family on Less Than Two Incomes."
She added: "Most couples don't realize taxes devour a bigger portion" of their income, especially if they file a joint return, It's because the current tax model generally favors the 1950s family model of one spouse working, the other at home. It's called the marriage tax penalty. According to the Brookings Institution's Tax Policy Center, one-earner couples almost always benefit from the tax code, but "spouses with similar incomes, particularly those in higher tax brackets, almost always suffer penalties. Having children magnifies both outcomes."
Second incomes can bump your family into a higher tax bracket and reduce some valuable tax credits, yet your overall exemptions and deductions stay about the same.
Take the case of my friend. She and her husband are working professionals. They had a baby. They paid for daycare. Then they did math. After taxes, childcare and commuting, his $50,000 a year salary only added $10,000 to the family's bottom line. He now takes care of the kids and the household. You might already be working for that - or less - and not even know it. That's why you have to run the numbers.
"You might be surprised how much income you'll have if you quit your job or work only part time," Topolnicki said. By reducing a second income, you'll often see a significant decline in your tax bill, and you might end up with more actual income from that single paycheck than you were expecting.
I know this from experience. The past two tax seasons have made me want to hide in my bedroom and weep into my pillow. I lose at least half of my income every year to the marriage and self-employment tax penalties, even though it's not easy juggling work with fiesty and loud 3- and 4-year-old boys. It changes the way I work and the projects I take.
There are many reasons to work, apart from profit. But if you're a frazzled parent who would rather be there when your kids get home from school, or want to spend weekends doing something other than running errands, do the math. Your actual take-home pay just might shock you. And seeing it all in black and white just might make it possible for one or both of you to scale back a bit at work. And couldn't we all use just a little more free time?
-Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance for The Columbus Dispatch, bankrate.com and middlepathfinance.com.