Tax Reform with a Feminine Accent
By Nicole St. Pierre
The $1.35 billion tax-cut law has been mulled over by just about every accountant and tax attorney in the country. By now, most Americans know what to expect: a drop in marginal tax rates, a doubling of the child tax credit, a gradual repeal of the estate tax, and some relief from the marriage-penalty tax. Buried in the legislation are a few provisions that will benefit women in particular. Here's a look.
According to the National Network for Women's Employment, a shortage of affordable and accessible quality childcare is the No. 1 reason many mothers leave or limit time in the workforce (see BW Online Small Business, 7/25/01, "An Invitation to Do Well By Doing Good"). That burden may soon be lessened, thanks to a provision in the new law. Beginning in 2002, employers providing on-site child care will receive a 25% tax credit -- up to $150,000 of expenses -- to renovate and staff a child-care facility. Analysts say the savings will give businesses a valuable impetus to introduce or improve on-site child care.
Also starting in 2002, all workers over the age of 50 will be allowed to make "catch-up contributions" to their IRAs and 401(k)s -- up to $1,000 a year by 2006. Although this "catch-up" is gender-neutral, Congress created the contributions with women in mind, says Patricia A. Thompson, vice-chair of an American Institute of Certified Public Accountants national committee on individual taxation. "It gives women an opportunity to save more now, for all those years they may not have contributed because of family obligations."
PADDING THE NEST EGG.
The tax-cut law also raises the maximum IRA contributions to $5,000 per year, from $2,000, and the maximum 401(k) and 403(b) contributions to $15,000, from $10,500. That's something all Americans will benefit from, but women in particular stand to gain more since they are away from the workforce for an average of 11 more years than men, take home 79 cents for every dollar a man brings in, and live 7 years to 10 years longer, according to averages compiled by the U.S. Census Bureau.
Clearly, such dismal statistics have consequences. In 1999, the average woman had $11,000 socked away in a retirement vehicle, vs. a typical man's $25,000. Allowing workers to save more is hardly the only provision aimed at bulking up the nest egg.
Beginning next year, workers won't have to stay with an employer as long to keep the money invested in a corporate-sponsored retirement plan, like a 401(k). Under the two vesting schedules used by businesses today, workers must remain for an average of five years before they are entitled to the cash their company vested. Starting next year, that average will drop to three years. Analysts say women in particular will benefit from the change, since they tend to switch jobs more than men because of family obligations.
Parents saving for a child's college education can breathe a small sigh of relief. Beginning next year, money socked away in government 529 plans and state-sponsored college-savings vehicles will no longer be taxed. Currently, earnings are taxed at the student's rate.
Such tax relief is especially beneficial for the nation's 4 million working single mothers. "On a modest salary, it's nearly impossible for a woman to simultaneously save for her retirement and a child's education. Slowly, that's changing," says Tamara King, vice-president of the Women's Financial Network, a discount brokerage firm.
To be sure, all parents and workers -- regardless of gender -- will benefit from the coming tax cut. But there's a case to be made that women will reap much-needed rewards long after the rebate check is cashed this summer.
St. Pierre covers business and economic policy for BusinessWeek in Washington
Edited by Beth Belton