Beyond Head of Household: Rethinking the Taxation of Single Parents
67 Pages Posted: 23 Feb 2016 Last revised: 20 May 2017
Date Written: March 2017
Under current law, unmarried taxpayers with children can take advantage of the head of household filing status (HHFS) to reduce their federal income taxes. We argue that the design of the filing status is largely obsolete, geared toward alleviating a “marriage penalty” in the tax code that is much less important than when the filing status was first established. At the same time, the growth in the fraction of Americans raising children outside of traditional two-parent households has dramatically raised the cost of the filing status to the fisc.
In this article, we highlight two features of the design of HHFS that undermine its goal of providing support to single parent households. First, because it is designed as a filing status, HHFS provides a larger tax break to high-income taxpayers than to low-income ones: in 2011 HHFS saved qualifying taxpayers in the 25th percentile of the income distribution approximately $23 a year compared to approximately $1,573 a year for qualifying taxpayer in the 75th income percentile. Second, the tax savings provided by HHFS bear no relation to the number of children a taxpayer supports, even though taxpayers supporting more children would likely benefit more from child-related subsidies than taxpayers supporting a single child. We propose reforming HHFS by replacing it with an expanded child tax credit for single parents and estimate that a revenue neutral reform along these lines would support a refundable tax credit of approximately $294 per child for households headed by single parents.
Keywords: Head of Household, Federal Income Tax, Taxation of the Family, Tax Reform
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