New federal tax rules will make it more costly for some single parents with older “boomerang” children when they file their tax returns this month.
Before the change, single moms and dads could claim a “head of household” tax break if they had at least one child living with them.
The designation of head of household allows taxpayers to take a larger standard deduction than a single individual and to use a more favorable tax rate table, thus lowering the final tax bill.
But when they file their federal tax returns this month for 2005, they’ll get this benefit only if the child living with them is either disabled, younger than 19, or younger than 24 and a full- time student.
“There will be some unpleasant surprises and a sense of loss among single parents who have adult children living with them when they file this year,” said Frank Degen, president of the National Association of Enrolled Agents, a group of about 11,000 tax specialists licensed to represent taxpayers.
Senate Finance Committee chairman Charles Grassley, R- Iowa, who led the effort to simplify the tax code, said it “wasn’t intentional” to take benefits away from any one group of people.
“We intended to have one definition and be neutral in its application,” Grassley said. “It may have been a consequence of it. I guess it’s foolish to think you can change the tax code and not affect someone.”
Congress made the change in 2004 when it passed a law to meld five separate definitions of a child into a “uniform” one to simplify the labyrinth of exemptions that taxpayers navigate.
John Buckley, chief tax counsel for the Democrats on the tax-writing House Ways and Means Committee, said the new tax on single parents is “an extraordinary complication to the law.”
Buckley gives these examples:
A single parent with $20,000 of taxable income will lose $456 in benefits;
A single parent with $40,000 of taxable income will lose $715;
A single parent with $60,000 of taxable income will lose $1,742; and
A single parent with $100,000 of taxable income will lose $2,339.
It’s not surprising that so many people and tax professionals are being caught off-guard by the change, said Gary McBride, a professor of accounting at California State University East Bay.
“In trying to simplify, Congress has made it infinitely more complicated,” McBride said. “A lot of people are going to be surprised and owe more tax.”
