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Family provisions in the new U.S. tax code

Date:9 NOV 2018
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The benefits of many provisions of the individual income tax code vary depending on a taxpayer’s family status. Similarly, tax rates and brackets vary by whether taxpayers are single, married, or filing under a different status. Qualifying requirements vary across these provisions, and some combine child-related benefits with work-related benefits. While these policies are designed to help taxpayers, they add unnecessary complexity to the tax code and thus are well suited for reform.

The U.S. Tax Cuts and Jobs Act (TCJA) made important changes to three of the primary family provisions in the tax code: the standard deduction, the personal exemption, and the child tax credit. However, further reforms could consolidate the various family-related credits into streamlined credits for children and for work and provide certainty to taxpayers by making the changes of the TCJA permanent.

This paper reviews six family-related tax provisions under current law, including how the TCJA reformed three of the primary family provisions, and examines the need for further reform.

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Key Findings
  • The tax code contains several provisions which vary based on family composition and are designed for purposes such as offsetting the costs of having children or encouraging lower-income individuals to join the labor force.
  • Currently, family status affects at least six tax provisions: the child tax credit, the child and dependent care tax credit and exclusion for employer-sponsored child and dependent care benefits, the earned income tax credit, filing status, the standard deduction, and tax rates and brackets.
  • The Tax Cuts and Jobs Act reformed three of the primary family provisions, by consolidating them into two expanded provisions, which simplified some parts of the individual income tax code.
  • The remaining provisions are still in need of reform. Many of the credits have different, and complex, qualification requirements, which leads to taxpayer confusion and problems with administrability.
  • Provisions that are related to work contain family status differentials, providing greater work incentives to workers with children than to workers without children, with no clear policy rationale.
  • Other family provisions contribute to marriage penalties or bonuses, resulting in different tax liability for couples than if they both were single.
  • The nonneutral treatment of different taxpayers, differences in qualifying requirements, and the overlap between some of the work and child benefits, present an opportunity for reforms that would simplify the process for taxpayers and better focus the intended incentives.
Read the entire paper HERE.
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