The Trump Tax Plan And The Single Parent

The Trump presidency began with promises of radical change, and one of the primary targets for change is the tax code. That leaves many Americans wondering what changes are coming, who will gain, and who will lose. Single parents are wondering right along with everyone else.

The administration's proposed simplification is still an evolving work in progress, but under current proposals, there may be a dramatic impact on single parents. That impact is likely to be positive for the wealthiest single parents, but those in the low and middle-income brackets could end up paying more. The Tax Policy Center claims, "more than half of single parents would pay more in taxes."[1]

Let's look at some changes that would affect many single parents.

Personal Exemptions Eliminated
The proposed changes would increase the standard deduction to $15,000 across the board, but would also eliminate personal exemptions. Under the current code, the standard deduction of $9,300 in addition to personal exemptions of $4,050 for each dependent and an exemption for the head of household drive down or (in the case of low-income single parents) eliminate the amount owed. That may change under current proposals. For example, under the existing code, a single parent filing head-of-household with three children can claim the standard deduction and personal exemptions that total $25,500; any income over this amount is taxable, while any income under this amount is not. Under the new plan, the only applicable deduction would be the standard deduction of $15,000, meaning that the filer's taxable income would be $10,500 higher. Larger families will lose more deductions and see the largest increase in their taxable income. The more dependents you are currently claiming, the greater the change will be.

Elimination of Head-of-Household Filing Status
Under the existing tax code, single parents file using the head-of-household status, enjoying a reduced rate. The head-of-household status levels the playing field for single parents, allowing them to enjoy a rate that is less than that of single filers with no children. The revised plan would eliminate the head-of-household filing status as part of a sweeping plan to reduce the number of tax brackets from seven down to just three, including 12 percent, 25 percent, and 33 percent brackets.[2]

Most head-of-household filers now fall into the 10-percent tax bracket; under the proposed revisions, all head-of-household filers will see an increase of 2 to 23 percent, depending on which bracket they're in, putting them on an equal footing with single people with no dependents.

Extending Child Tax Credit and Childcare Credits
The new proposal would extend or expand some credits. The Child Tax Credit would increase to $1,500 per child, with $1,000 of the credit available as a refundable credit, meaning that eligible filers could get a refund for any credit not absorbed by the tax owed. The plan allows single parents to deduct the cost of childcare up to the average cost of the care in their states, which would reduce the tax that single parents owe. The average childcare deduction of approximately $5000 is only available for children up to age 13.[3] Low-income parents would see a 7.65 percent rebate on childcare expenses via the Earned Income Tax Credit or EITC.

Expansion of the Earned Income Credit
The EITC is a popular credit among single parents. This refundable credit may increase under the current overhaul, which proposes increasing the EITC by up to half of the amount of payroll taxes paid by the parent.

When Will These Changes Go Into Effect?
The list of proposed changes is extensive and complicated, and there is no sure way to know when or even if these reform initiatives will occur. Changes to the tax code require congressional approval, so the administration will need to persuade 535 legislators before any changes take effect. Even then, legislation is subject to revision as it makes its way through the House and the Senate. There will surely be changes to the tax code, but there will be an extensive debate, and Congress may decide to alter or discard many of the provisions now under discussion.

The proposals currently in play would have a serious impact on many single parents, and in many cases, that impact would mean higher payments. That does not mean you will be paying more; it means that there are proposed changes that may affect you. Single parents need to monitor the evolving process, even though it often seems remote and hard to understand. We need to understand what is happening and how it might affect us. We need to take action and engage politically based on our beliefs and our understanding. Representatives do listen to constituents, so if you are concerned, let yours know!