How Did the Tax Cuts and Job Act Affect Single Parents?

The Tax Cuts and Jobs Act (TCJA) was signed into law on Dec. 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 have a few tax-filing seasons under their belts when it comes to accommodating the TCJA rules, but some people are still confused about where they stand. Are you better or worse off than you were back in 2017? It depends. The devil is in the details of your personal financial situation.

Some of the TCJA's provisions significantly affected one of America’s largest demographics: 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 in that year.

Your top tax bracket is the percentage of the last dollar of your income earned. 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%.

The TCJA changes were favorable for most people. There are still seven tax brackets, but many of the rates have been reduced. When a head-of-household filer earns enough income to bump them out of the lowest tax bracket (this threshold was set at $14,650 in the 2022 tax year and is set at $15,700 for the 2023 tax year), they pay 12% on the income that falls in that second bracket. That's a 3% savings compared to pre-TCJA tax rates.

Tax rates were adjusted downward all across the board for every filing status and all income levels. The 2022 and 2023 tax brackets are set at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% before the passage of the TCJA.

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 their 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 2023. 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.

Qualifying As Head of Household

You must meet three requirements 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. You may still qualify for this filing status if you're still technically, legally married 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 your 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. But there are exceptions, such as when the qualifying person is the tax filer's dependent parent. There isn't a requirement that the head of household and dependent live together in this case, although other rules apply.

The TCJA Suspended Personal Exemptions

Your deductions and exemptions help to determine your taxable income. They're subtracted from your overall earnings, then your tax bracket is applied to the remaining balance.

Each taxpayer was entitled to claim a personal exemption for themselves and each of their dependents before passage of the TCJA. 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.

But the TCJA suspended all personal exemptions in all scenarios.

The Law Increased Standard Deductions

In place of personal exemptions, the TCJA nearly doubled the standard deduction available to all taxpayers. The increased standard deduction may make up for the loss of personal exemptions for some families, 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.

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 $1,600 of the child tax credit is refundable under the TCJA in 2023.

The TCJA also added a credit for other dependents 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 phaseouts for high-income taxpayers. The threshold for this phaseout is set at $200,000 for all single filers.

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.

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