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SPOUSAL EXEMPTION

Tax, pension breaks called favoritism for homemakers

50-year-old system said out of step with world of working wives

by Mizuho Aoki

Staff Writer

The tax and social security systems have long been seen as favoring full-time homemakers over working women because they are based on single-income households.

But dual-income households have been the norm since 1997, leading many experts to call the systems outdated.

According to a Health, Labor and Welfare Ministry report, there were 6.15 million dual-income households in 1980 versus 11.14 million single-income households. By last year, however, there were 10.12 million dual-income households and 7.97 million households with full-time housewives.

Following are basic questions and answers on the tax and social security systems as they apply to housewives:

What kind of tax break does a nonworking homemaker get?

Although a full-time housewife does not get direct preferential tax treatment, her employed husband can deduct ¥380,000 from his income tax and ¥330,000 from his residential tax.

Breadwinners can claim the exemptions only when their spouses earn no more than ¥1.03 million a year.

If a breadwinner’s spouse earns between ¥1.03 million ¥1.41 million, husbands can still claim the exemption for the lower amount, ranging from ¥30,000 to ¥380,000.

When did the spousal tax deduction start?

The exemption was introduced in 1961, during the postwar surge in economic growth, a time when most married women were full-time housewives. The work of stay-at-home wives, including housekeeping and child-rearing, had a value placed on it.

But nowadays more women are working after marriage, and this has stirred debate on the spousal deduction.

In its campaign for the 2009 general election that brought the Democratic Party of Japan to power, the DPJ pledged to reduce or abolish the exemption for nonworking spouses and use the extra revenue to pay for its promised child allowances. But internal opposition delayed the government’s rethink of the exemptions until 2010.

In terms of social security, is there any advantage to being a full-time homemaker?

Yes. Full-time homemakers and people who work part time (three-fourths of a full-time shift) and earn no more than ¥1.3 million a year do not have to pay the national pension premium. Their pension premium is covered by all salaried workers enrolled in the “kosei nenkin” (employee pension) program.

This break, however, does not apply to spouses of the self-employed, who pay into a different pension program than the one for corporate employees. The wife of a self-employed worker must pay a ¥15,020 national pension premium each month, regardless of whether she has an income.

This inequality has prompted calls to revise the current system, which welfare minister Yoko Komiyama has called “very strange,” considering that everyone — including dual-income households — is covering the pension premiums for full-time and part-time homemakers.

According to welfare ministry data, 10.21 million homemakers were covered by this exemption in 2009, or about 30 percent of women aged between 20 and 59.

What about househusbands?

The same condition applies to married men who stay at home or work part time, but only about 1 percent of married men file for the exemption.

In fiscal 2009, some 110,000 men were covered by the pension exemption, according to the labor ministry.

Apart from the inequality between single- and dual-income households, are there any disputes over the tax and social security systems as they pertain to housewives?

The labor ministry feels the current situation is preventing married women from working on an equal footing with men. Because of the ¥1.3 million cap set for the pension premium exemption and spousal tax reduction, married women who could work more feel compelled to restrict their time on the job, it says.

The Japan Institute for Labor Policy and Training’s 2010 survey found that about 25 percent of spouses who worked part time intentionally kept their job hours within the exemption threshold; 36.8 percent said they kept their income below ¥1.3 million to avoid paying pension premiums; and 26.4 percent said they did so to maintain their spousal-exemption status.

With the population expected to shrink, the labor ministry said it’s important to revise the tax and social security systems so more married women will enter the workforce.

The government’s new growth strategy aims to raise the ratio of working women between 25 and 44 from 66 percent of the labor pool in 2009 to 73 percent by 2020.

Are revisions to the exemptions in the offing?

Not anytime soon.

The Tax Commission, an advisory body to the prime minister, said Thursday it won’t rethink the spousal tax deduction for fiscal 2012, because it is focusing on hiking the consumption tax.

As for revising the pension system as it pertains to homemakers, a reform panel proposed a plan in September that would divide a breadwinner’s employee pension into two, meaning spouses would split the benefits. However, the pension premium paid by the breadwinner would stay the same, which critics said would prevent the system from becoming more fair.

Also, an advisory panel to the welfare ministry agreed on Nov. 30 to expand employee pension coverage to more part-timers by lowering the threshold on working hours from 30 hours a week to 20. But some say this would only prompt married women to further reduce their work hours.

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