How Will the Tax Cuts and Jobs Act Affect Single Parents?

Changes affect filing status and eliminate personal exemptions

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2016 was a political hotbed of a year that still has many Americans wondering about the country’s path going forward. President Trump has said a lot about what he plans to do for America, and some of those plans have concerned taxation.

The Tax Cuts and Jobs Act (TCJA) was ultimately signed into law on December 22, 2017, bringing many of his plans to fruition. The law became effective in January 2018. Some of the TCJA's provisions affect one of America’s largest demographics—single parents.

Tax Brackets Have Changed

There were seven federal tax brackets in 2017, ranging from 10 percent for head of household filers earning less than $13,350 up to 39.6 percent for those with incomes in excess of $440,550. Loosely defined, your tax bracket is the percentage of your income that you must give to Uncle Sam at tax time.

President Trump proposed cutting that system to just three tax brackets of 12, 25, and 35 percent, but that didn't end up happening.

So how did the TCJA ultimately affect tax brackets? The change is actually favorable. Parents who qualify for head of household filing status—and many do—can earn up to $13,600 for the 2018 tax year before moving up into the next tax bracket. That's up from $13,350 in 2017, but that extra $250 is really only an inflation adjustment.

The big difference here is that there are still seven tax brackets, but with more favorable tax rates. Under the TCJA, you'll only move to a 12 percent income tax rate at that threshold instead of 15% as in 2017. There's a savings here of 3 percent.

Tax rates have been adjusted downward all across the board for every filing status and all income levels. The 2018 tax brackets are set at 10, 12, 22, 24, 32, 35, and 37 percent. Before the TCJA, they were 10, 15, 25, 28, 33, 35, and 39.6 percent.

About that Head of Household Filing Status…

If you qualify as head of household, you can earn more before moving into the next highest tax bracket. For example, if you earned more than $9,325 under the 2017 tax code, any income over this amount would be subject to taxation at that 15 percent rate for single filers. If you were head of household, however, you could have earned up to that $13,350 income figure before moving into the 15 percent tax bracket. 

This can be very helpful for a single parent who’s supporting her household on her own. Although there was some early scuttlebutt that the head of household filing status would be eliminated by the TCJA, that didn't end up happening either. It would have resulted in single parents paying the same single tax rate as an unmarried 20-something living at home with Mom and Dad and no dependents. This part of the plan met with huge resistance and the TCJA did not end up passing with this provision. The head of household filing status is still alive and well in 2018.

Among other more complex rules, qualifying as head of household means being unmarried or not living with your spouse during the last six months of the tax year, having at least one dependent, and paying for the majority of the upkeep of your home. A good many American parents fall into this category.

As things stand at the beginning of 2018, you’ll pay 10 percent in taxes if you’re a single parent filing as head of household and earning less than $13,600 annually. You'll fall into the new 12 percent bracket on income up to $51,800, into the 22 percent bracket on income up to $82,500, into the 24 percent tax bracket on income up to $157,500, and the 32% tax bracket on income up to $200,000. The 35 percent head of household bracket kicks in at up to $500,000, and the 37 percent bracket applies to income above that level.

The TCJA head of household tax brackets continue to be kind to single parents who qualify.

No More Personal Exemptions

Tax brackets don’t exist in a vacuum. Your deductions and exemptions help to determine your taxable income. They subtract from your overall earnings and your tax bracket is then applied to the remaining balance.

Each taxpayer was entitled to claim a $4,050 personal exemption for himself and each of his dependents in the 2017 tax year, so a single parent supporting two children could have shaved $12,150 off her earnings to arrive at her taxable income before determining her tax bracket: $4,050 times three.

But the TCJA eliminates personal exemptions, so she'll pay taxes on $12,150 more in income. Or will she?

Increased Standard Deductions

Fortunately, the TCJA brought about other changes as well. President Trump also raised the standard deduction available to all taxpayers, and this balances the loss of personal exemptions, at least for smaller families. Large families will probably still take a tax hit.

Head of household filers preparing their 2017 tax returns could take a standard deduction of $9,350 if they choose not to itemize their deductions. The TCJA increases this to $18,000 in 2018, a significant difference of $8,650.

This increase covers two of those lost personal exemptions: $8,100 with $550 left over. So the taxable income of a head of household single parent with two kids does not actually increase by $12,150, but only by $3,500: the hike of $12,150 less the additional $8,650 in the standard deduction.

It’s still an increase, but we’re not done yet. 

The New Child Tax Credit

The TCJA has ramped up the child tax credit as well. It used to be $1,000 for each child under age 17, but the new tax law doubles this amount to $2,000. The TCJA also adds an additional family tax credit of $500 for each dependent who doesn't qualify for the child tax credit because she's age 17 or older—think college students. And $1,400 of the child tax credit is now refundable.

You shouldn't have to worry that you'll lose out on this credit because you earn too much, either. A single taxpayer can now earn up to $200,000 before the credit begins phasing out for higher earners.

The Bottom Line

As with all tax changes, the devil is in the details. Some single parents might find themselves better off thanks to the TCJA. Others might be hurt. A lot might think this is all a lot of hullaballoo about nothing because their tax bills won’t change all that much.

Single parents’ tax burdens hinge on the interlocking components of all four of these aspects of the TCJA. None can be considered good or bad on their own.