You don't understand money!!!

[Frugal]

I agree with FrugalGirl.

There are ways to save money, whether you are making 100k or 10k. If a person has bad spending habits learned from their childhood, etc., they are not going to change their spending habits if they make more. Increasing salary does not always increase savings; as a matter of fact, the reverse is true.

When I had jobs that paid more, I tended to save more, but I know that is not true for a lot of people (in America? Or just around the entire world? Not sure, but we Americans have one of the lowest savings rates in the developed world, well behind Asian economies like China and Japan).

[disneysteve]

I have several friends who make low six figures who fixate on the gross.

I think this is the source of a lot of problems.

Let's say you make 100K.
30K goes to taxes
16K goes to your 401k
5K goes to health insurance

That brings you down to 49K before you even get your check. If you go about your life and spending thinking you make 100K, you're going to get into trouble really quick. You don't make 100K. You make 49K. If you buy a house based on an annual income of 100K, you'll go out and spend 250K-300K on the house and find you are struggling every month and not know why. You need to budget and spend based on your net, not your gross.

[DebbieL]

Your taxes work way differently in the US than our do from what I'm reading. Do you mean that the second person in a working couple doesn't receive any personal excemption? Here in Canada we are all taxed based on our level of income, but we all receive a certain level of personal excemption (eg the first $11K-$25K are tax free - based on dependents, being a student, etc). Married or single it doesn't matter. Taxes are filed separately - however you are linked to your spouses income when certain things are calculated (child tax credits, etc).

If a person in the US earns say $100K, and they are the spouse of someone else who earns $120K, do you mean that the person earning $100K pays 28% (or whatever the rate is) on their ENTIRE $100K? Here in Canada it is always incremental. The first say $36K is taxed at about 15% (federally) plus about 6% (in BC that is the lowest provincial rate), then the next 15K would be taxed at a slightly higher rate, etc, etc. We would never pay the highest rate on our entire income.

[snshijuptr]

In America you file "Married Filing Jointly" usually. You get exemptions of $3650 per person. You then get a $11,600 standard deduction for the couple. You income is added together then you subtract exemptions and deductions and then apply tax brackets. So as long as the first spouse earns more than $18,900 then the next spouses additional income will be taxed at the highest bracket.

(Well unless you move from Married Filing Jointly to Head of Household. The latter has a smaller deduction.)

[LivingAlmostLarge]

It's all one income in the US if you are married. When couples have a disparate income it makes sense sometimes to not work because you net barely less than two people working with kids, etc.

Frugalgirl, I get it as well. I know she's busy, but here's the point I don't get. If a person who stays at home is "working" by doing the daycare providers job then the second parent working is just handing off money. So in either case all four parents are "working".

[couchrobt]

Live the life that you want but you will have to work hard for it. It is the reality of it all. It may sound hard, but who knows. Some must have been lucky.

[thekid]

Canadian here too. Was about to post Debbie's question.

This is the first time I hear that both incomes get added together with the second income being taxed at the first's marginal rate going up.

If this was the situation in Canada, my wife would most probably not work. In Canada income taxes are filled seperately (only a few credits and deductions can be shared or applied to one income).

[KTP]

Canadian here too. Was about to post Debbie's question.

This is the first time I hear that both incomes get added together with the second income being taxed at the first's marginal rate going up.

If this was the situation in Canada, my wife would most probably not work. In Canada income taxes are filled seperately (only a few credits and deductions can be shared or applied to one income).

that is how it *should* be in the USA, but we encourage our citizens to be non-productive whenever possible through our tax and welfare systems. Everybody seems to like it, so I figure don't rock the boat and gave up looking for work. They will even pay me half of my wife's SS for retirement even though I have only a couple of credits!

[thekid]

that is how it *should* be in the USA, but we encourage our citizens to be non-productive whenever possible through our tax and welfare systems. Everybody seems to like it, so I figure don't rock the boat and gave up looking for work. They will even pay me half of my wife's SS for retirement even though I have only a couple of credits!

Well Canada (especially my home province of Quebec) tends to be much more left/social leaning, but it's certainly not the case here.

I'm actually quite perplexed, this is quite a steep "penalty" on marriage.

[jpg7n16]

I'm actually quite perplexed, this is quite a steep "penalty" on marriage.

If you're perplexed it's because you're comparing taxes on a 2 income family to a 1 income family - instead of taxes on a married couple filing jointly, versus 2 separate single filers. (if they were both working, and not married, they'd have to file as singles)

The 120k income (if filing single) would have been in the 28% bracket of his own accord if filing single.

I used a quick calculator here: Federal Tax Calculator for 2010 for some quick estimates.

Filing separately as singles (one with $120k and one with $80k), the tax would have been approx. $38,535. Filing jointly, the tax is approximately $39,008 {remember to clear the standard deduction and personal exemptions before hitting submit}.

The 'penalty' isn't "steep." It's like $500.


And marriage is highly beneficial for married couples living off one person's income.

For instance, if the wife stayed at home, the family saves a lot by filing jointly:

$120k filing single - 24,691
$120k filing jointly - 17,688

[KTP]

There is a whole mess of other stuff that doesn't get calculated in such a simplistic analysis. For example, I had tuition payments in 2010 of $4500 but could not deduct ANY of it against my income because my wife's income put us over the eligibility limit. Same thing for Roth contribution, and also for the making work pay credit. You factor all that in and the penalty is a bit more than $500. I am sure I am forgetting some other things...when I did taxes it was a constant "Income is too high to qualify for this deduction".

The system makes it better to just not work. Less chance of AMT, you get better treatment filing jointly, and you get half of your spouse's eligible SS.

[LivingAlmostLarge]

Yep, AMT, no child tax deduction, no tuition deduction, etc. But with one high income you only pay this year 4.2% SS instead of 4.2% on two incomes. So it depends on if there is an income disparity.

[thekid]

If you're perplexed it's because you're comparing taxes on a 2 income family to a 1 income family - instead of taxes on a married couple filing jointly, versus 2 separate single filers. (if they were both working, and not married, they'd have to file as singles)

The 120k income (if filing single) would have been in the 28% bracket of his own accord if filing single.

I used a quick calculator here: Federal Tax Calculator for 2010 for some quick estimates.

Filing separately as singles (one with $120k and one with $80k), the tax would have been approx. $38,535. Filing jointly, the tax is approximately $39,008 {remember to clear the standard deduction and personal exemptions before hitting submit}.

The 'penalty' isn't "steep." It's like $500.


And marriage is highly beneficial for married couples living off one person's income.

For instance, if the wife stayed at home, the family saves a lot by filing jointly:

$120k filing single - 24,691
$120k filing jointly - 17,688

Why is that? Are the brackets different for joint filings than for single filings?

[KTP]

Why is that? Are the brackets different for joint filings than for single filings?

Yes.

There is a benefit to filing joint if only one spouse works, and a disadvantage if both spouses work (but they have fixed a portion of the disadvantage at least temporarily).

But it is probably good that there are different brackets for joint vs single filings. Imagine the outrage if everyone could file single (not married filing separately). You could have a person with a 200K income and their spouse non working with the three kids getting $15,000 to $25,000 back from the government in the form of aid.

[thekid]

Makes much more sense now that I see that single and joint filings have different brackets. I understood it as the second income being taxed at the first income's maginal rate going up. That seemed crazy steep.

KTP, to your point, in Canada even if it's seperate filings most credits and aid are dependent on family income (so the low income spouse doesn't get aid destined to low income earners when the spouse makes significant money).