Two incomes are better than one, right?  As we all know, the answer isn’t clear cut.  If we have to actively “work” to generate income, we have to balance exchanging time for money.  Nothing comes for free.  When you throw in a tax system to convolute matters, certain households are actually punished for going into the workforce.  There is a delicate balance between each income-earning member and what each profession entails.  Some households are hit harder financially than others due to the income situations of each spouse, but hey, we don’t choose our partners based on their incomes right?

This conundrum isn’t limited to doctor households or families with a high-income earner.  One of my neighbors is a financial analyst with a stay-at-home wife and two kids.  The wife opted to resign from her previous job as a teacher because her entire income would have gone towards childcare.  That’s just how life plays out sometimes.

The tax man punishes disproportionate incomes

The U.S. tax system almost always “punishes” the spouse with a lower income.  Two main reasons:

1. The tax system is progressive, just like how the jackpot in those slot machines keep on growing.  The higher your income, the more likely you will get pushed toward a higher marginal tax bracket.  Suppose a dual income household has a physician earning $350,000 a year and an IT customer support specialist earning $60,000 a year.  The physician income alone puts the family in the 32% marginal tax bracket.  If the IT professional were single, he’d only be in the 22% bracket. If he were the sole breadwinner in the family, they’d be in the 12% marginal bracket.  Instead, the family will be in the 35% marginal bracket.  This means that a good portion of his income will be taxed at 32% (until the family income reaches the 35% threshold) and the rest at 35%! Perhaps that is the penalty one pays for being in a high-income household.  For some households, giving up 35 cents for every dollar you earn on a $60,000 might not be worth it.

2. Social Security and Medicare taxes get taken out “twice” in a dual working household.  This is a system that you pay into while working and will receive some repayment in retirement.  But one could argue that it’s still potentially less money in your pocket.  A family with spouses earning $350,000 and $60,000 a year will potentially take home less than another family with a single earner with a $410,000 income.

Whether the lower income producing spouse remains in the workforce ultimately depends on what is most important to the family.  Interestingly, most of my colleagues in this situation made their decisions based on finances.  Essentially all of the lower income spouses ended up leaving the workforce to care for their children until the kids became old enough to enter school.  Some of the spouses re-entered the workforce.  One wife of a couple I know actually worked side gigs with Instacart and Rover while the kids were in school!

Spouses with similar incomes fare better

Our tax system tends to be more forgiving when each member of a dual income household has similar incomes. Each member still needs to pay into Social Security and Medicare separately, but they would have been required to do so even if they were unmarried.  These households are undoubtedly more equipped to reach their financial goals more quickly, but are also susceptible to overextending their earnings because they have higher earnings.

Most of my experience with dual income households is with dual doctor households.  Since medicine is a relatively time-demanding profession, I find that most dual doctor households are obligated to outsource many tasks.  Instances include:

• Utilization of grocery delivery services or grocery pick-up services.
• Utilization of Uber Eats, Seamless, or other restaurant delivery services.
• Utilization of dry cleaning services with pick-up services.
• Nanny or Montessori schooling for young children.  Some nannies command salaries in the $70k range, more than what most medical residents earn!  I once knew a doctor household who kept their nanny until the kids were well into high school!
• Utilization of lawn and home cleaning services.

There is no end to what you can outsource.  While the income levels of dual doctor households may be higher, their taxes are higher, and the expenditures tend to be higher as well.  Are these families actually better off financially than single doctor households?  I would suspect that the split is actually more even than we would expect.  There are a handful of dual doctor families I’ve seen that completely outspend their earnings. Shocking? Not anymore.

How to be a winner

There isn’t a single best answer to handle the finance implications of dual income households.  The bottom line is that some of us are going to get the short end of the U.S. tax system.  We might not have a choice in the matter.  What we do have control over is how much we save and invest.

“Smart Money, MD” is an ophthalmologist who blogs at the self-titled site, Smart Money MD.

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