When making more actually is a real tax disadvantage?

[Anonymous]

Anonymous wrote:

Anonymous wrote:NP. You need to know your and your DH’s tax liability. Is your DH withholding enough given your new family income?

???? OP needs to be making quarterly tax payments based on her revenues. This doesn't have anything to do with her husband's wage withholding.

It sounds to me like maybe she didn't make quarterly payments, her husband is still overwithheld, and they got lucky they didn't owe a lot more (and she probably owes or will owe penalties if she's not paying quarterly).

OP here. I made my quarterly payments and I did not pay a penalty. However because my income is irregular and unpredictable (and much of my income hits 4th quarter because of the timing of projects), my quarterly payments basically only cover payroll taxes. Only my last quarterly payment involved actual income tax liability last year because it was only at that point that I knew I'd have any. I do have some wiggle room on estimated tax payments because I file jointly with my husband and his paycheck slightly overwithholds to ensure we don't get hit with a penalty. But in 2023, due to us both making more, the overwithholding didn't actually cover our income tax liability.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

Thars a different question. Look at your total income last year and taxes paid. And at income this year and taxes paid. Did you go into a new bracket so all income ABOVE the bracket threshhold subject to a higher tax rate. You needing childcare to work is not a taxing issue.

[Anonymous]

I don't think making more is ever actually a disadvantage and I say this as someone who found out my quarterly payments will need to go up a lot next year. Tax increases are incremental and ONLY on the amount you make above the threshold lines.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

It's not taxes that are the issue. It's the extra time and how it costs you a lot in childcare costs. That's an issue every dual-income family with very young children has to deal with. Everyone deals with it in different ways depending on their particulars. Eventually your kids will be in school and this financial pressure won't be as much. It's just the way it is in the US.

My kid IS in school. The childcare costs are just for the summer. In 2022, we spent almost nothing on summer childcare costs because I was able to turn down a couple projects and shift some work to nights and weekends in order to be our summer childcare solution. In 2023, I was really working to build my business and we paid for actual childcare, plus we had some aftercare costs during the year. So we spent a lot more on childcare in order to enable me to double my efforts in my business.

These costs will not go away or get lower -- we will need to figure out summer childcare and aftercare for the foreseeable future. I am struggling with it because I feel like I need to be earning a LOT more to justify those expenses. My hope with the business was that I'd be able to earn enough more to actually not only cover childcare costs but also additional costs of activities as our DC gets older plus also put more away for college and retirement. I am wondering if I am deluding myself.

The goal here was flexibility, too, as opposed to a normal 9-5 job which is what I used to do, which had very limited flexibility and was hard on our family dynamic. But the more I work, the less flexible it is. I get that all families deal with balancing these issues, I'm just frustrated because I feel like a gerbil on a treadmill right now -- I'm working really hard and I feel like I'm in the same spot I was in last year, basically.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

Thars a different question. Look at your total income last year and taxes paid. And at income this year and taxes paid. Did you go into a new bracket so all income ABOVE the bracket threshhold subject to a higher tax rate. You needing childcare to work is not a taxing issue.

I don't see the point in separating the tax and childcare issue -- both are costs associated with working more. The point is whether working twice as much is actually worth the increase in income after taxes and childcare are paid.

Would you work twice as much for an extra 3-5k a year? I'm guessing no.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

Thars a different question. Look at your total income last year and taxes paid. And at income this year and taxes paid. Did you go into a new bracket so all income ABOVE the bracket threshhold subject to a higher tax rate. You needing childcare to work is not a taxing issue.

I don't see the point in separating the tax and childcare issue -- both are costs associated with working more. The point is whether working twice as much is actually worth the increase in income after taxes and childcare are paid.

Would you work twice as much for an extra 3-5k a year? I'm guessing no.

That is a common analysis and a dilemma. It comes with opportunity costs either way. However, it has nothing to do with a tax "disadvantage."

[Anonymous]

I totally get it, OP. It's one of the really hard things about having young kids and working. There's this sweet spot between working a little bit so you don't lose your mind, and working so much that it doesn't feel worth it.

I'd step back and work less/charge more. There will be time to ramp up your career when your kids are out of the "childcare" stage, but right now it doesn't seem worth it. Taxes are just a way of your brain bringing up that doubt in your mind.

[Anonymous]

Anonymous wrote:I don't think making more is ever actually a disadvantage and I say this as someone who found out my quarterly payments will need to go up a lot next year. Tax increases are incremental and ONLY on the amount you make above the threshold lines.

++1
Especially, not as a business owner. I read that in the op and my sympathies decrease because like op mentioned with deductions, there is way more wiggle room with taxes and reinvesting in her business, than someone working for a business.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

It's not taxes that are the issue. It's the extra time and how it costs you a lot in childcare costs. That's an issue every dual-income family with very young children has to deal with. Everyone deals with it in different ways depending on their particulars. Eventually your kids will be in school and this financial pressure won't be as much. It's just the way it is in the US.

100%. If I dont work our HHI is 115k pre taxes and 0 in childcare costs because I am not working. We would obviously pay less in taxes compared to if I am working. I am having a second and have a rising 1st grader. Next year, while working FT and our income being 185k we will pay 30k in childcare costs and more in taxes.

This is dual income with children and having to pay for childcare and then paying taxes on top of the money you earn.

[Anonymous]

Death and taxes, they suck but it's not helping you to obsess about it

[Anonymous]

Look into more deductions to show bigger losses to reduce taxes

[Anonymous]

Anonymous wrote:Look into more deductions to show bigger losses to reduce taxes

for you business, look at credit cards, car, hone office, add up anything possible you spend your money on for you business, Internet, phones, utilities etc

[Anonymous]

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

Wait, so your childcare costs are flexible and adjust to your hours worked? Are you going form like working 8 hours a week to 16 hours a week, and just hiring a babysitter for that time?

For must of us, we pay a fixed childcare cost no matter what hours we worked -- and if we go beyond that usually the spouse will be home from their own full time job by then -- otherwise why even have kids.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

It honestly sounds like you feel its unfair your DH does the same job and got an 8% bump (which is an amazing raise, where does he work?), while your only way to earn more money is to work more hours? But you are the business owner, give yourself a raise and increase the rate you charge your clients rather than working more hours?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

If you worked twice as many hours (so, went from let’s say 5hr a day to 10hr a day) and only brought in an additional 14k, then yes it sounds like you’re not making enough for that to be worth it. But it has nothing to do with taxes it has to do with the fact that if it’s an extra 5 hours a day you’re working you’re making like 90 cents an hour. Just work at Starbucks instead.