How Will the Tax Cuts and Jobs Act Affect Single Parents?
Changes under Trump's tax law affect deductions and personal exemptions
The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017, and it turned a lot of the old tried-and-true tax rules upside down when it became effective in January 2018. Taxpayers and tax preparers alike now have a tax filing season under their belts when it comes to accommodating the new rules, but some are still confused about where they stand.
Are they better off or worse than they were back in 2017? It depends. The devil is in the details of your personal financial situation. Some of the TCJA's provisions affect one of America’s largest demographics pretty significantly—single parents.
Tax Brackets Have Changed
There were seven federal tax brackets in 2017, ranging from 10% for head of household filers earning less than $13,350 up to 39.6% for those with incomes in excess of $444,550.
Your top tax bracket is the percentage of the last dollar of your income earned in that tax year. For example, the first $13,350 earned by a head of household filer was taxed at 10% in 2017, but earnings of $13,351 would result in $1 being taxed at the next bracket of 15%.
President Trump initially proposed cutting this seven-tiered system to just three tax brackets of 12%, 25%, and 35%, 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 $13,850 in the 2019 tax year before moving up into a 12% tax bracket.
That's up from $13,600 in 2018, but that extra $250 is only an inflation adjustment. And it's not even to mention the adjustment from 12% to 15% on that next bracket.
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% income tax rate at that threshold instead of 15%, as it was in 2017. There's a savings here of 3%.
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%. Before the TCJA, they were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
About that Head of Household Filing Status…
You can earn more before moving into the next highest tax bracket if you qualify as head of household. If you earned more than $9,325 as a single filer under the 2017 tax code, income over this amount would be subject to taxation at the 15% rate. But you could have earned up to that $13,350 before moving into the 15% tax bracket if you were head of household.
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 tax rate as an unmarried 20-something living at home with Mom and Dad and no dependents.
As things stand in 2019, you’ll pay 10% in taxes if you’re a single parent filing as head of household and earning less than $13,850 annually. You'll fall into the 12% bracket on income up to $52,850, into the 22% bracket on income up to $84,200, into the 24% tax bracket on income up to $160,700, and the 32% tax bracket on income up to $204,100.
The 35% head of household bracket kicks in at this income up to $510,300, and the 37% bracket applies to income above that level.
The TCJA head of household tax brackets continue to be kind to single parents who qualify.
Eliminating the head of household status 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 2019.
Qualifying as Head of Household
Among other more complex rules, qualifying as head of household means being unmarried on the last day of the tax year—Dec. 31—or not living with your spouse during the last six months of the tax year.
You must also have at least one dependent and personally paying for the majority of the upkeep of your home—more than half your monthly bills. A good many American parents fall into this category.
No More Personal Exemptions
Tax brackets don’t exist in a vacuum. Your deductions and exemptions help to determine your taxable income. They're first subtracted from your overall earnings, then 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 increased this to $18,000 in 2018, a significant difference of $8,650.
The number jumped in 2019, as well, from $18,000 to $18,350.
These increases cover two of those lost personal exemptions: $9,000—the difference between the $9,350 standard deduction in 2017 and $18,350 in 2019—less $8,100 in lost exemptions, with $900 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 $3,150: the hike of $12,150 in lost exemptions, including the parent's, less the additional $9,000 in the standard deduction.
It’s still an increase, but we’re not done yet.
These numbers compare the deductions and exemptions available in 2017 to those available in 2019.
Changes to the 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 TCJA doubled 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 refundable under the TCJA.
You shouldn't have to worry that you'll lose out on this credit because you earn too much, either. A single taxpayer can earn up to $200,000 before the credit begins phasing out for higher earners.
The Bottom Line
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.
The Tax Foundation. "2017 Tax Brackets," Accessed Oct. 19, 2019.
The Tax Foundation. "2019 Tax Brackets," Accessed Oct. 19, 2019.
The Tax Foundation. "2018 Tax Brackets," Accessed Oct. 19, 2019.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2019," Accessed Oct. 19, 2019.
Internal Revenue Service. "Publication 972 (2018), Child Tax Credit," Accessed Oct. 19, 2019.