Study: Women’s earnings dropped by 4% after their partner’s yearly income crossed payroll tax exemption threshold

New research from the Carolina Population Center shows that when a man’s yearly income reaches a certain tax threshold, it can negatively influence what his female partner earns due to conventional divisions of household labor.
A recent study by Carolina Population Center Fellow Manuel Schechtl and co-author Andreas Haupt has highlighted the gendered effects of Social Security payroll tax exemptions on the labor outcomes for working women in couples.
Schechtl and Haupt found that, on average, women’s earnings and hours worked dropped by 4% after their partner’s yearly income crossed the Social Security payroll tax exemption threshold. This exemption kicks in when an employee’s income reaches a certain threshold — currently $168,600 according to the IRS. Any earnings made above that threshold are not taxed for Social Security, significantly increasing a worker’s take-home pay.
Dividing household labor
Since the 1970s, women have increased their hours in paid work. This has, in turn, strengthened their economic self-reliance. However, women in couples did not witness a parallel reduction in the number of hours spent doing unpaid work at home such as child rearing or basic household chores, resulting in a stressful double burden.
The concept of scaling—when couples decide to either increase or decrease their amount of paid work to ease the extra burden of household responsibility—was a significant factor in Schechtl and Haupt’s study.
“If one partner earns more, then sometimes the other partner reduces their labor to take care of the kids,” Schechtl said.
According to Schechtl and Haupt’s study, scaling shows strongly gendered patterns in couples who both work. They found women often react to increases in their male partner’s income by decreasing the amount of time they spend doing paid work, while men typically do not adjust their labor based on their partner’s income gains.
Sharing work lives
The idea for the study grew out of the notion that the work lives of couples are intertwined.
“Partners lives are linked, their biographies are linked, and their employment behavior is linked,” Schechtl said.
Schechtl and Haupt wanted to explore the changes in labor behavior when one individual in a couple hits the Social Security payroll tax threshold. They thought the changes in behavior could be similar to how other major life events affect working couples.
“For example, if one spouse gets a promotion to work somewhere else, this will affect the other spouse’s work behavior,” Schechtl said. “There’s reason to believe provisions such as this payroll tax cap will also affect the partner’s labor.”
The study was conducted using data from 7,297 women collected via the United States Panel Study of Income Dynamics (PSID). The PSID gathers information about employment, income, wealth, expenditures, health, marriage, and numerous other topics. CPC researchers focused on the professional behavior of a woman when her male partner entered payroll tax-exempt earnings on the labor market.
Evaluating tax exemptions
The study suggests that as men benefit from this tax exemption, it creates strong financial incentives for women to reduce their paid labor.
These findings reveal how payroll tax exemptions for high earners can contribute to reinforcing gender inequality, particularly within upper-income households. Schechtl and Haupt argue that this link has been overlooked in previous studies and could offer valuable insights into policies aimed at addressing gender inequality in the labor market.
“We also want to know if male partners adjust labor market behavior when their female partners earn above that payroll tax threshold,” Schechtl said. “But because of gender inequality in earnings, only around 1.4% of women are above that threshold. So, we cannot study it because there’s just not enough data.”
Schechtl said that examining IRS tax records could offer insight into whether male partners change their work behavior when their higher-earning female partners cross the payroll tax threshold.