How Will Trump's Proposed Tax Changes Affect Low-Income Families?

By Beverly Bird ; Updated June 08, 2017
Single mother with her son using a laptop computer

Love him or hate him, President Donald Trump has a way of shaking things up. Just when we’ve gotten used to the way we do our taxes, he’s about to change many of the usual rules. His supporters are applauding, and the Tax Policy Center has indicated that the changes will reduce taxes for many Americans. But some taxpayers may not fare so well.

No More Heads of Household

One change that has many concerned is Trump’s proposed elimination of the head of household filing status. The vast majority who qualify for this status are single parents. You generally can’t qualify if you’re married and you must have at least one dependent.

Head of household filers currently receive more generous tax treatment in a few ways. First, they can claim a higher standard deduction than other filers if they choose not to itemize: $9,350 compared to $6,350 for single filers as of tax year 2017. The deduction is essentially the same for married taxpayers: $12,700 if they file jointly, or double the $6,350 deduction for single taxpayers. Married individuals who file separately are entitled to claim a $6,350 standard deduction as well.

So there’s a loss of $3,000 right there – or, at least, individuals who would normally qualify as head of household would end up paying taxes on $3,000 more in income because deductions reduce taxable income. But that would only occur if this happened to be the only change on the table, and others are afoot as well.

No More Personal and Dependent Exemptions

Trump has also proposed to eliminate personal and dependent exemptions from the tax code. Currently, taxpayers of any filing status can shave $4,050 off their taxable incomes for themselves and for each of their dependents.

That can add up to a lot of money for parents. For example, a mom raising three kids on her own can reduce her income by $16,200: $4,050 times four. Add to this the $3,000 already lost with the head of household elimination, and these people might be taxed on a great deal more income.

The Standard Deduction

So far, this all sounds pretty negative. How can the Tax Policy Center say that anyone will come out ahead tax-wise when all these adjustments seem to take money out of their pockets? It can happen because Trump’s proposals give back a little, too.

Remember that standard deduction we were talking about earlier, the one that’s $9,350 for heads of household and $6,350 for everyone else? Trump wants to increase everyone’s standard deduction so head of household filers wouldn’t actually end up with a deduction that’s $3,000 less than what it used to be. It would go up to $15,000 for single filers and married taxpayers who file separate returns, and double that – $30,000 – for married folks filing jointly. So even with the loss of the head of household status, single parents wouldn’t really pay taxes on $3,000 more in income. They actually pay taxes on $5,650 less in income: The new $15,000 standard deduction instead of the old $9,350 head of household deduction.

The Child Care Deduction

Of course, there’s still the issue of those lost personal and dependent deductions, so parents with several children could find themselves paying more regardless. But this is where Trump’s proposed child care tax deduction comes in.

You don’t have to itemize to claim it, and it’s separate from the existing child and dependent care tax credit. It’s technically an “adjustment to income,” which means that it’s deducted on the first page of your tax return to arrive at your adjusted gross income, which is what you actually pay taxes on. It applies only to children under the age of 13 – teenagers are not deemed to require third-party care when their parents aren’t around. Deductible care expenses cannot exceed the average day care cost in the taxpayer’s state.

Opponents argue that lower-income parents don’t spend enough on child care to gain much advantage from this change. Professional day care is not within many of their budgets. They use family members, friends or private babysitters. These parents would lose out on their dependent exemptions without a significant corresponding child care deduction boost to balance things out, according to a report by Harvard Business Review.

Tax Brackets May Change, Too

Trump has proposed at least one more sweeping change to help balance the impact of the eliminated head of household, personal and dependent deductions. Currently, there are seven separate tax brackets ranging from 10 to 39.6 percent of taxable income. In simplified terms, it works like this: The more you earn, the higher your tax bracket and the more of a percentage you pay in taxes on your taxable income. Forbes indicates that Trump wants to change this to three brackets of 12 percent, 25 percent and 33 percent.

Is this good or bad? It’s not quite clear yet. The White House has hinted at but has not yet definitively stated what income ranges these three tax brackets would apply to. Obviously, the nation’s wealthiest individuals who are currently paying 39.6 percent will see a tax cut down to 33 percent, but the effect on those who earn much less is as yet uncertain.

The Status of Trump’s Proposed Changes

Your head is probably spinning by now as you try to figure out where you stand, particularly if you’re not a math whiz. To complicate things further, Trump has tweaked some of the details since taking office. According to CNBC, he indicated in February 2017 that a cohesive plan would be forthcoming in a few weeks, and the Washington Post reported that some changes from the original plan were indeed announced in April.

Remember that $15,000 standard deduction? The current proposal reduces it to $12,700, or $25,400 for those who are married and file jointly. As for those three tax brackets, they’ve been changed, too, but this tweak is more generous to lower-income taxpayers. The brackets are now set at 10, 25 and 35 percent. So even as a taxpayer might lose $2,300 on the newly proposed standard deduction, those who earn the least will pay taxes at a rate that’s 2 percent less than the original proposal. Those who earn the most will pay 2 percent more.

The Washington Post indicated in April 2017 that Trump has also responded to criticism that the child care deduction would not particularly benefit lower-income parents. He now says he aims to restructure the child and dependent care tax credit, either instead of or in addition to the deduction to make it more accessible and beneficial to parents.

So stay tuned. This story isn’t finished yet.

About the Author

Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.