Calculating the Mommy Tax
Personal investment guru Ric Warren famously calculated that the services provided by the average housewife -- the cleaning, the errands, the chauffeuring and myriad others -- are worth an annual salary of about $500,000. The problem is economic realities don't hold that much value in the work provided by stay-at-home moms and housewives. This means that when a mom decides that she's going to stay home with her child, she's opting out of the chance to generate cash for the household.
The most obvious factor in the so-called mommy tax is loss of a second source of income. If a mom makes $50,000, that income dries up when she opts to stay at home. The amount lost is less than that round figure, however. Federal and state governments remove tax contributions from income, and the feds also require contributions to Social Security and Medicare. This makes the loss of income less than it initially appears.
If mom's income is no longer in the picture, the couple must still file jointly. This reduces the taxable income, which reduces the household's tax. Taking into account federal taxes, the real loss of income to the family is $39,300, not the $50,000 in gross income. And this is just factoring in federal income tax alone, not other required contributions. To get a real idea of what annual income loss the family will see, multiply the net income on your pay stub by 12 months.
A little more nerve-wracking is the loss of any savings investments contributed by the mom's earnings. The thought of cutting a potential nest egg in half is daunting. This can be overcome, especially in cases where the mother's employer matched contributions to a company 401(k) or IRA. This definitely represents money lost that can't be regained in other areas.
Health care benefits are also a consideration. In many cases, the dad's employer offers enough coverage that the entire family will be covered. A family may already lean on just one parent's plan. If this is the case, it's likely the better, less expensive plan offered between the two employers. If mom's plan proved better and she opts to stay home, then look for an increase in monthly insurance premium payments deducted from dad's paycheck. To be clear, even though you can make it with just one plan, the loss of health benefits still equates to a loss of income.
Staying at home doesn't represent a total loss, however.