My taxes are just too high, should I retire?

[Reggie]

At what point is it just not worth it to work anymore?

With our combined salaries, I am making about .43 on the dollar. I do contribute the max to my 401k so that $17,500 is only taxed by social security and medicare. But as a whole, I bring home .43 for every dollar I am paid.

I just don't think it's worth it. And that also doesn't include the tax credits for which we would qualify if I didn't work. $5000 tuition and a child tax credit and possibly more....that's just off the top of my head.

And I'm pretty sure that this year it may even be 'worse'. My husband just got a really good promotion which comes with a $20k increase in salary and I also just took a job that has a higher labor category. We get raises and all I can think is how much more in taxes we will pay.

I know a lot of people in our tax bracket are thinking the same thing. There has to be a point where it is not worth it to pay more in taxes than you bring home.

[Joan.of.the.Arch]

Are you saying you do not need your income?

[Reggie]

I guess. But my point is that if you are paying more to the government than you are bringing home of your own earnings, maybe it's time to throw in the towel.

[Spiffster]

Just figure out what Romney did to only pay 13%. In all seriousness, dont higher taxes mean higher pay? Its not like taxes are gonna cancel out a 20K pay increase. Heck, one of my financial goals in life is to make it into the highest tax bracket I can.

[Caoineag]

You might want to take a look at your deductions. I doubt taxes are the only culprits behind bringing home less than half your paycheck. Medical insurance, 401(k), etc can all contribute to a low rate of take home and that doesn't go to the government.

I bring home only 44% of my paycheck but I max my 401(k) and pay for aflac out of my check. My husband brings home 66% of his paycheck, but has a family HSA, 401(k) and medical insurance coming out of his.

[Reggie]

I'm not really referring to take home pay, I'm referring to end of year total taxes, ss and medicare. how much we pay now including what we owe next week and how much we would pay if I did not work at all.

[Mjenn]

That is a strange situation to be in, but also you do need to remember that some of that is going to social security and medicare, which, if you live long enough, you should recoup.

I find the numbers interesting as I am right now living in a 'socialist' country and have my own company. If I only count taxes taken directly off of my salary, I only pay 27% - if I include my 'payroll taxes' (which are not listed as taxable income for me, but instead paid directly from my company, then I am closer to 66%, but after all of the deductions allowed it ends up being around 45- 50% (that is not including sales tax -- with sales tax included I pay about 75% of all the money that comes into my company back to the government)

Technically I could go on unemployment and shut my company down and make only slightly less than I am making today for about a year or so. BUT that would also severely cut back on my long term benefits such as pension and sick leave insurance.

I have also collected a great deal of maternity leave pay from the government based on my current salary, which means that right now I can say I have probably collected more money from the government over the last 5 years than I have paid.

I also love my job and would be bored out of my mind staying at home long term.

At the end of the day, it is not just a plus/minus equation here, you need to look at the whole picture. But I do think if I lived in the US I would be a lot less happy to pay a lot of tax. Here my tax money works directly for me, and I see it every day. It may not ALWAYS work well, but it is being used to help make my life and the lives of those around me, better.

[bjl584]

The decision to retire shouldn't be based on your tax bill. It should be based on whether or not you have enough saved to live on the rest of your life if you were to quit working today.

If you have enough saved and invested to sustain yourself until death, and you are frustrated with working because of your tax liability, then you can throw in the towel. But, you may want to look into lowering your tax liability. I'm sure that there are some things that you can do to lower your taxes. Scheduling a meeting with a CPA may be worth it to you.

[corn18]

I understand your frustration. I pay a lot of taxes as well. But I also make a lot of money. My friend put it all in perspective with something his dad told him: son, you will be very happy that first time you pay $1,000,000 in taxes. Not sure if that is true or not, but I can understand the perspective.

As for your situation, I wonder how you came up with $0.43 after taxes. Do you live in the US? I am in the highest tax bracket by a long shot and take home $0.61 for every dollar I make. That includes federal, state, local, medicare and social security. You can't get in a higher tax bracket than I'm in, so how you lose another $0.18 on the dollar is escaping me. My take home is much lower than that, but that's not what you are referring to.

Tom

[MonkeyMama]

Reggie - I totally understand!

I think there are more expenses when you work than just the taxes. So it's likely you are taking home way less than .43 on the dollar. On the flip side, there are other benefits to working, besides just current pay situation. So I would step back and weigh all of the costs and benefits.

My mom never worked and my spouse retired at 25. These were largely financial/efficiency decisions.

I personally don't have a huge income, but because of AMT and phaseout of deductions and credits, it would be very easy for us to make another $40,000 and have it go *100%* to taxes. I see it all the time in the forums, with friends and family, with tax clients, etc. If I had a dollar for every person I see making 50% more income but taking home the same amount I do. It's ridiculous!!

We had outside motivations for spouse to retire. We had kids. Working full-time for a few pennies while having small kids just never made any sense. Even with daycare out of the equation now, it really doesn't make any sense. & when are kids are grown it likely won't make any sense. Though my spouse does want to return to the workforce eventually, so I will probably just slow down or go part-time when he does.

I am a tax professional. Most people don't understand how wonky the tax code is and how tax inefficient some of their earnings are. More money is more money, except when it isn't more money. I literally make $20k less than last we both worked, but we net a few more thousand dollars today. & that does not include the substantial cost savings of spouse not working. (No commute costs, and spouse can full-time economize at home).

[MonkeyMama]

P.S. I live in a high tax state, but it's regressive so we don't pay any state taxes of any note, personally. To address some of Tom's questions. (Top California tax rate is 13%, I believe).

[Reggie]

Monkeymama- you get it. There is much more than just federal tax brackets. I am a CPA and I think that's my problem. I know precisely at what point the return starts to lessen. Even in a "progressive" tax structure there are points where you literally pay more in taxes than you earn due to the phasing out of expenses and deductions. My husbands business income is being raped because of our equal employment income. The tax code is designed for one person to make significantly less than the other person and in our case we have similar salaries.

We are the marriage tax penalty. If we were both single, we would pay tens of thousands less in taxes.

Knowledge is troubling in my situation. I wish I were more blind to the tax code and could just get my check and be happy. But I have to write that big check to the IRS next week and it makes my Accountant mind race with the possibilities!

[MonkeyMama]

Monkeymama- you get it. There is much more than just federal tax brackets. I am a CPA and I think that's my problem.

Okay, that explains everything. Preaching to the choir.

Whatever you decide, it will at least be an educated decision.

There is middle ground. Maybe no point working full-time, but may be worth keeping your hat in the ring. As a CPA I worked too hard for my license to just full-on retire. & I personally don't have it in me to rely on someone else 100% financially, in the interim.

[corn18]

I would like to know the answer to the $0.43 question. I am not questioning the truth to the claim. I would like to know the details for my own education. I would love to pay less taxes, but I don't see how making less money is a good solution for that. I do understand deciding whether it is worth working more to make marginally more. I am looking at the possibility of starting a consulting business and haven't even looked at the tax impacts of doing that. The last thing I want to do is work more and make less.

Tom

[Reggie]

I can get close but I don't know all of the lost deductions off the top of my head.

.02 city
.0175 school
.0675 state tax
.046 lost oppor credit for college tuition
.0765 ss and Medicare
.009 addtl Medicare
.33 federal