Funny about Money

The only thing necessary for the triumph of evil is for good men to do nothing. ―Edmund Burke

How to Fight the Stay-at-Home Parent Penalties

Lest you hadn’t noticed, stay-at-home parents face a new punishment: if you’re an SAHP, a 2009 change in credit-card rules means that you now cannot get a credit card in your own name, because, after all, what you do is not work.

Yeah.

This is just another of several rules and attitudes that devalue a type of work still done mostly by women. Some of the penalties for raising children and caring for a home and spouse have severe long-term consequences. Most notable of these has to do with Social Security: if you’re not spending your days in an officially recognized “workplace” and so having FICA withheld from your salary, you’re not eligible for Social Security. Never mind that you work 24/7 at humanity’s most important work: bringing up the next generation. If you take time out of a career to care for children and spouse, you’re likely to find your Social Security benefit significantly reduced come retirement age. This certainly was true for me—even though I worked steadily as a freelance journalist while I was married, my income was small and it mostly served as a tax write-off, leaving me with $0.00 taxable income during those years.

Graduate school didn’t help: pay for teaching assistants is even more exploitive than adjunct pay, and when I was overseas doing research my income came from grants and fellowships; thus during that period there were a couple of years where no taxable income appeared on the books.

Besides the insulting implication that the work you do is essentially worthless, the new rule means that as a stay-at-home mom or dad, you can’t establish your own credit history and build your own credit score. This puts you at a huge disadvantage should you divorce or be widowed.

Clearly there are ways around this. Most of them are infantilizing or degrading: they involve your having to beg your spouse to cosign or make you an authorized user (good luck with that, if you’re married to an abuser!), or to prevaricate by filling in the blank for your income with what is really household income—i.e., your spouse’s income.

However, over at Daily Finance, which is reporting on a protest led by one Holly McCall, a commenter comes up with a freaking brilliant idea:

Sit down and discuss with your other half how much you want for being a stay-at-home mom (which in itself is basically considered a luxury by society.) Form an LLC, maybe Holly at Home. Have your other half cut you a check. Don’t forget to take out tax, in case you become unemployed, need SS, or a tax write-off.

—theycallmeroy3

Wow. Think of that. Wish  my ex and I had thought of it, thirty years ago. (And, btw, notice the attitude implicit in “basically considered a luxury”: bringing up your children in their home instead of warehousing them in daycare is a luxury).

I spent a fair amount of my time as a corporate wife and SAHM…during which I did not rack up a salary and did not pay into FICA. If my husband had been paying a household budget to me as “salary” or into an LLC as contractor’s pay for housekeeping, child care, and public relations and marketing, possibly I could’ve claimed unemployment when we divorced. But more to the point, I would have been paying into FICA, and when I suddenly found myself laid off at 64, too old to get another job, I would have had a significantly higher Social Security benefit.

When you’re married to a heavy-hitting lawyer, doctor, or corporate executive who can afford to keep you at  home, you’re doing a lot more than scrubbing floors and chasing kids. You’re helping to build and maintain his public image and community presence by engaging in volunteer activities (as high-profile as possible), serving on nonprofit boards, entertaining clients and colleagues, and hosting social events. Basically this is marketing and PR. And it has a significant market value: PR people earn a decent wage in our culture.

Housewives generally don’t. However, the cost of replacing a housewife, should a stay-at-home spouse die or leave, reflects what that work is worth. In 2006, nannies were earning between $15,600 and $52,000, plus benefits. In my part of the country, a cleaning lady—who takes no responsibility for raising the kiddies—typically earns between $80 and $100 a day: that would come to between $20,800 and $26,000 a year. So, in Arizona a SAHP who does not spend a significant portion of her or his time doing PR for the working spouse would be worth $36,400 to $78,000.

This assumes the conjugal duties are unpaid. Try hiring a call girl or keeping a mistress and tell us what that would cost. 😉

Clearly, then, the SAHP’s work has objective monetary value.

So, it should be reasonable to pay that person through an LLC or an S-corporation. The implications are huge.

First, as the person draws money out of the entity as salary, she or he pays FICA on it. That means s/he gets credit toward Social Security for work done for the household and the children. And it means that should the SAHP be widowed or divorced, she or he would not have to rely on the spouse’s Social Security credits—or be shorted if she spent some time working after the kids were grown but not enough to rack up the best possible benefit.

Of course, it would also mean the SAHP would be able to claim, without having to lie on a credit card application, an income. Credit-card issuers could not deny a card by asserting that the applicant does not “work.”

The SAHP might be able to create her own IRA or 403(b) through her corporation, allowing the couple to salt away a larger amount of tax-deferred savings.

And of course, tax advantages always accrue around corporations. If the SAHP’s business entails schlepping children around town, driving to grocery stores, and attending charitable events, obviously the car and gasoline become deductible. If she is paid to clean house and she supplies the cleaning supplies and tools out of her pay, then the Windex, the Simple Green, and the vacuum cleaner should be deductible. If her duty is to represent her husband in the community by maintaining a public profile, then the cost of entertaining clients, serving on boards, and belonging to organizations such as Junior League, the art museum guild, and the zoo auxiliary should also be deductible, assuming she pays those costs with her income.

Should the couple divorce, as some 50% of American newlyweds do, the implications could be significant. If the “working” spouse is paying a salary or contractor’s fee based on the market value of the SAHP’s work, it could limit the amount a court would award for support; or, on the other hand, it could serve as a floor for the amount to be awarded. That is, it could represent either a minimum or a maximum amount of alimony, depending on how courts viewed the arrangement.

Interesting idea, isn’t it? What say you, readers? Would you take a job as a stay-at-home spouse? How much do you think your services would be worth, objectively?

Image: Stay-at-Home Dad. BCantrallGNU Free Documentation License.

Author: funny

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14 Comments

  1. @ Nicoleandmaggie– I loved that post of yours! It was a bit over my furry little head…but as far as I could follow the principle, very interesting.

    Of course, this scheme would accommodate that idea: it would turn unpaid labor into paid labor, and the SAHP would thereby pay taxes on it. On the other hand, s/he would also collect the benefits from those taxes, in the form of Social Security benefits and Unemployment Insurance compensation, which is not possible now. Well, in the case of SS, it’s possible but in a roundabout way: you make a claim based on your spouse’s SS benefit.

    To the extent that SAHPs who elect to incorporate themselves as LLCs or S-corps would indeed pay taxes on otherwise unpaid labor, the arrangement would be fairer not only to the individuals involved but to the larger society. Everyone would get some financial benefit (in the form of revenues to support government services) as well as the societal benefit of children raised in-home by parents.

    However, the person would not be paid on some putative estimate of what the work was worth (in your post, you posited the example of a deck built by the home handypersons), but on what she or he actually earned for the work. For couples where the workplace drone was earning less than six figures, this might not be practical; but on the other hand, possibly what is regarded as “reasonable” compensation could be income-adjusted, based on what the partner who’s hiring the SAHP earns.

  2. Soc Sec favors nonworking spouses, who receive a 50% spousal benefit. My mother worked for a while and her ss benefit was exactly the same as the 50% benefit from my father–so she received not a dime extra for her years of work.

    As far as self-employment as a SAHM: you pay both sides of the social security, totalling 15%. Then you pay fed and state tax on it–at least another 20%.

    So these schemes seem ridiculous.

  3. I’m not sure about SAH spouses getting an automatic 50% of the earner’s benefits. I certainly am not getting 50% of husband’s. He made a lot more than me and in retirment gets almost 3X what I get.

  4. They only get it if they don’t remarry/divorce. My mother gets a decent SS income from my father’s work; he died when I was 17 and she never remarried. She also worked full time after that. The spousal SS benefit only kicks in if there is no divorce or remarriage.

  5. *Meant to say that some spouses will only get a benefit calculated on the working partner as long as they don’t divorce and/or remarry.

  6. Not quite–even in cases of divorce, the nonworking spouse gets a percentage based on the duration of the marriage–must be at least 10 yrs, I think.

  7. You’re entitled to get the equivalent of your husband’s Social Security if you’ve been married for X number of years — ten is the number that sticks in my mind, too. My ex and I were together for 25 years.

    The problem is, a whole series of arcane rules governs this little lagniappe. If you’ve been working, you also have been racking up points toward SS. When you’ve acquired a certain amount of credit toward SS — as I recall, it’s half of what he would be entitled to — presto changeo! You lose eligibility to collect the amount equivalent to his entitlement.

    Because I got a job at the Great Desert University (which, for the first ten years, paid somewhat less than the median wage Arizonans earn, which ain’t much), by the time I needed to collect SS, I was TEN DOLLARS over the cut-off! So, screw you, lady: you get to rely on your own very limited resources. The fact that most of that 25 years I was not earning enough to be taxable or I was working as a homemaker was irrelevant; so was the fact that 25 years out of the workforce meant my pay was stupidly low.

    Consequently, my Social Security benefits are significantly less than my ex’s. They’re even less than SDXB’s, who quit his job to enter bumhood in his late 40s!

    Part of the issue is that men have historically earned much more than women. Part of it, though, is the assumption that “women’s work” — i.e., child-rearing, home-making, and the cultivation of marriage — is worth nothing. Monetarily, that is. And in a culture where one’s worth is measured by the size of one’s monetary compensation, you can see where that puts women.

  8. While it is an interesting idea, the tax code has specific provisions which penalize you for “paying” the parent of your child for their labor. For example, while you can take a child tax credit for money you have paid a thrid party, or even a relative like a parent or sibling to take are of your child while you work, you cannot deduct money you give a parent. So, if you pay your divorced husband to care for your child while you work, this is not deductible, although payments to your mother would be. Seems unfair, doesn’t it?

    Seems like you would end up getting reamed on taxes. Real family income =100,000. Pay 35,000 to non-working wife. Reported joint income, 135,000. End up paying an additional 12K in taxes on the “additional” income that all comes from the working spouse. And just try and deduct living expenses as “business” expenses, and watch the auditing fun…..

  9. @ M Doats: Yeah, I see what you’re saying. But the guy’s idea of having the spouse incorporate is what makes this a potentially useful strategy. If the purpose of the corporation is to provide housekeeping and nanny services, then in fact, audit or no audit, those costs would be business expenses for the corporation.

    The corporation pays the spouse. It’s true, I think, that the result would be to jack up the reported joint income. But it wouldn’t be necessary to have the corporation pay out ALL the money to the wife as salary. If the corporation (let’s say it’s an S-corp) is paying for necessary and customary costs of doing business — which would include the costs of cleaning gear, gasoline, car upkeep, and…good grief, maybe even food for the kids — those costs would be paid with pre-tax money.

    It would make sense to have the corporation pay her (or him) something, so as to generate FICA payments and qualify the person for Social Security. After you were married for the requisite 10 years, though, that could stop, since the spouse would qualify for the workplace spouse’s SS if the worker bee died or left the marriage.

    This scheme could work even better if the two weren’t legally married. Then the issue of whether you can pull it off if the owner of the corporation were your spouse and co-parent of your children would be largely mooted. You could claim the person is just a live-in housekeeper/nanny. LOL! Mom as au pair…

  10. Well I would defer to any accountants out there, but my understanding is that any personal expenses paid by an S corp is counted as a distribution to the shareholder, not as a deductible business expense. In fact I think it was just this that got Leona Helmsley sent to the big house.
    Whether the parents are married or not is not considered by the IRS – its whether you are the child’s parents….
    Couldn’t the working spouse just purchase an annuity for the benefit of the non-working spouse for each year up to ten years (when SS eligibility kicks in)? This would be tax sheltered and would compensate for the years of no SS contribution if the marriage breaks up before 10 years.

    • If you have any thoughts about taking this wacky idea seriously, absolutely speak to an accountant…who probably will laugh you out of the room!

      I’ve had a tax lawyer and a CPA do the taxes for my S-corp. Expenditures for ordinary and normal costs of doing business — such as office supplies, books, and web hosting fees — have never been treated as distributions to me. In our crazy scheme that we’ve cooked up here, the spouse’s LLC or S-corp would be in the business of cleaning houses and caring for children. Because those are the business’s function, obviously it would need to purchase supplies in the form of cleaning products and gear. Eh?

      The annuity idea is interesting. Sane, though.

  11. I will venture one idea (based on my admittedly limited understanding of how money works in the world, so be kind): What if requests for credit (like credit cards or mortgages) were based on total household income, divided by members of the household over the age of majority?

    For example: Take a household where Partner A works outside the home and is paid $100k/year, and Partner B takes care of the home (perhaps including minor children) and is not paid a wage. Instead of A being eligible for credit based on $100k annual income and B eligible for none, each would be eligible for whatever credit would be extended based on personal credit history and $50k income.

    Is that already being done? Has it been done in the past, and failed? It seems as though a setup like this would avoid overextending of consumer credit (as might happen if each partner applied for credit and listed an income of $100k), but avoid penalizing those who are not employed outside the home but still make meaningful contributions to the household economy and will be able to pay their bills.

  12. @ Remy: Well, now, here’s the problem with that plan: it makes sense. We can’t have that, can we? 😀