HOW THE TAX CODE HURTS WOMEN--AND WHAT YOU CAN DO ABOUT IT
(MONEY Magazine) – Here's one more reason to dislike the federal income tax code: It discriminates against women. Ed McCaffrey, author of the new book Taxing Women (University of Chicago, $29.95) and a University of Southern California law professor, told reporter Beverly Goodman how the tax system encourages women not to work--and offered some advice:
Q. How does the current tax code treat women unfairly?
A. Since they generally get paid less than their husbands, wives get taxed at a higher rate. For example, say a husband earns $53,400. The first $12,200 of his salary doesn't get taxed at all. The rest gets taxed at the 15% rate. But as soon as his wife starts working, the first dollar she earns puts them into the next bracket and is taxed at 28%.
Q. But isn't the woman still contributing significantly to the household income?
A. Not really. After all, once you have two wage earners, you have additional costs. Child care alone can wipe out the remainder of her income after taxes, not to mention other work-related costs, such as commuting. All told, women's salaries often bring in little, if any, extra money. So the tax code actually discourages women from working outside the home.
Q. What should working women do?
A. Recalculate your '96 taxes without the second income. Then you can weigh the pros and cons of having that second paycheck. For instance, a stay-at-home spouse could put away $2,000 a year in an IRA. A company-sponsored 401(k) plan, however, could let her invest up to $9,500 annually.
If you want to keep working but your company doesn't offer a dependent-care assistance program, lobby for one. These plans let you set aside as much as $5,000 pretax for child care each year. A couple in the 28% tax bracket (taxable income of $41,201 to $99,600) with two kids could save $1,783 in taxes, or $823 more than with the standard child-care credit.