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 2018. Taxpayers and tax preparers alike now have a couple of tax filing seasons under their belts when it comes to accommodating the new rules, but some are still confused about where they stand. Are they better or worse off 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 affected one of America’s largest demographics pretty significantly—single parents. Here's how.
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 10%, 25%, and 35%, but that didn't end up happening.
So how did the TCJA ultimately affect tax brackets?
The change was favorable for most people. There are still seven tax brackets, but many of the rates have been reduced. For example, when a head-of-household filer earns enough income to bump them out of the lowest tax bracket (this threshold is set at $14,200 in the 2021 tax year and $14,650 in the 2022 tax year), they now pay 12% on the income that falls in that second bracket. That's a 3% savings compared to pre-TCJA tax rates.
Tax rates have been adjusted downward all across the board for every filing status and all income levels. The 2021 and 2022 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%.
Head-of-Household Bracket Thresholds
One benefit of filing as head of household is that you can earn more before moving into the next highest tax bracket. This can be very helpful for a single parent who’s supporting the household on their own. A single parent would essentially be paying the same tax rate as an unmarried, childless 20-something living at home with their parents without those extended bracket thresholds.
Check the chart below for a sense of how head-of-household bracket thresholds compare to single-filer thresholds in tax year 2021. You'll notice that the benefits are concentrated on the lower end of the tax bracket, and the thresholds gradually come closer together before meeting at the same threshold for the highest tax bracket.
|Tax Bracket Thresholds: Head of Household vs. Single Filers|
|Tax Bracket Rate||Head of Household||Single|
|12%||Begins at $14,201||Begins at $9,951|
Qualifying as Head of Household
There are three requirements you must meet if you want to file as head of household.
First, you must be considered unmarried for tax purposes on the last day of the year. If you are still technically married, you may still qualify for this filing status if you didn't live with your spouse for the last six months of the tax year in question.
Second, you must have paid more than half the costs of keeping up a home during the year.
The third requirement concerns the qualifying dependent in your life. In the case of a single parent, the qualifying dependent is their child. In most cases, this qualifying dependent must live with the head of household for more than half of the year. There are exceptions, such as when the qualifying person is the tax filer's dependent parent—in this case, there isn't a requirement that the head of household and dependent live together.
The TCJA Suspended Personal Exemptions
Your deductions and exemptions help to determine your taxable income. They're first subtracted from your overall earnings, and your tax bracket is then applied to the remaining balance.
Before the TCJA, each taxpayer was entitled to claim a personal exemption for themselves and each of their dependents. This personal exemption was $4,050 in the 2017 tax year. In other words, a single parent supporting two children could have shaved $12,150 off their taxable earnings.
However, the TCJA suspended all personal exemptions in all scenarios through at least tax year 2025. No one is eligible to claim personal exemptions until that aspect of the TCJA has expired.
Increased Standard Deductions
In place of personal exemptions, the TCJA nearly doubled the standard deduction available to all taxpayers. For many families, the increased standard deduction may make up for the loss of personal exemptions, but large families with many children might still take a tax hit relative to how they would have benefited from personal exemptions under pre-TCJA tax law.
The standard deduction for heads of household is $18,800 in the 2021 tax year. That's an increase of $150 from the standard deduction offered in tax year 2020.
Changes to the Child Tax Credit
The TCJA 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. Up to $1,400 of the child tax credit is refundable under the TCJA.
These rules don't apply to the 2021 tax year, however. The American Rescue Plan Act increased the credit to $3,000 for children age three, and to $3,600 for children under the age of three, when it was signed into law in March 2021 to address the coronavirus pandemic. It also adjusted the age limit from under age 17 to under age 18, and it made the credit fully refundable. These rules apply only to tax year 2021.
The TCJA also adds an additional family tax credit of $500 for each dependent who doesn't qualify for the child tax credit, such as college students older than 17.
Both of these credits are subject to phase-outs for high-income taxpayers. The threshold for this phase-out is set at $200,000.
The Bottom Line
Some single parents might find themselves better off, thanks to the TCJA, and others might not. Tax bills probably won't change all that much for many average families, however—at least when it comes to simple filing situations.
Tax Foundation. "2017 Tax Brackets."
The American Presidency Project. "Press Briefing by Secretary of the Treasury Steven Mnuchin and Director of the National Economic Council Gary Cohn."
Tax Foundation. "2021 Tax Brackets."
Tax Foundation. "2022 Tax Brackets."
Internal Revenue Service. "Publication 501: Dependents, Standard Deduction, and Filing Information."
Internal Revenue Service. "Five Things to Remember About Exemptions and Dependents for Tax Year 2017."
Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Pages 7-8.
Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Page 4.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2021."
Internal Revenue Service. "What's New With the Child Tax Credit After Tax Reform?"
U.S. Congress. “H.R. 1319—American Rescue Plan Act of 2021,” Sec. 9611, Pages 141-142.