There’s been a lot of tax-related noise in Congress recently, much of it campaign-posturing of course, but some of interest to tax resisters.
- Delightfully, it’s predicted to reduce government revenue by $146 billion dollars over the next decade.
- The standard deduction and 15% bracket for married couples won’t revert to the way it was under the so-called “marriage penalty.”
- The 10% tax bracket continues and will expand with inflation.
- The per-child tax credit stays at $1,000, but fewer poor families will qualify for the refundable per-child tax credit.
- “The legislation reduced complexity through reconciliation of the five definitions of a child in the tax code into a single defintion for ‘qualifying child.’” — this may affect some people who apply for the per-child tax credit, the child-care tax credit, or for other dependent-related deductions and credits.
This last one requires some explaining:
Present law contains five commonly used provisions that provide benefits to taxpayers with children: (1) the dependency exemption; (2) the child credit; (3) the earned income credit; (4) the dependent care credit; and (5) head of household filing status. Each provision has separate criteria for determining whether the taxpayer qualifies for the applicable tax benefit with respect to a particular child. The separate criteria include factors such as the relationship (if any) the child must bear to the taxpayer, the age of the child, and whether the child must live with the taxpayer. Thus, with respect to the same individual, a taxpayer is required to determine eligibility for each benefit separately, and an individual who qualifies a taxpayer for one provision does not automatically qualify the taxpayer for another provision.
Politicians have gotten a lot of mileage out of this, and they’re fond of saying things like:
We’ve got to simplify the tax code. Why did you know they have five different definitions of “child” in there?
[Pause for gasps, laughter and applause]
The implication being that the IRS, out of a perverse thrill in or a wanton disregard for taxpayer anguish and confusion, has created all of these definitions of “child” when a just and loving God would have been happy with just one.
What the tax law is trying to do with all of these definitions is not to come up with competing ideas of what “a child” is, but to determine for any particular credit, deduction, or categorization whether the taxpayer’s relationship to a child is of the sort that the taxpayer qualifies for that credit, deduction, or categorization.
For instance, if you’re trying to take a child as a dependent, the IRS wants to know things like: do you support that child financially? is the child related to you or legally adopted?
For reasons good, bad, and arbitrary, Congress had created a tax code that says a child that qualifies a taxpayer for one thing may not qualify a taxpayer for another. Now they’re trying to make things simpler:
The Senate amendment establishes a uniform definition of qualifying child for purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit, and head of household filing status…
Under the uniform definition, in general, a child is a qualifying child of a taxpayer if the child satisfies each of three tests: (1) the child has the same principal place of abode as the taxpayer for more than one half the taxable year; (2) the child has a specified relationship to the taxpayer; and (3) the child has not yet attained a specified age. A tie-breaking rule applies if more than one taxpayer claims a child as a qualifying child.
The more I look at the summary of the law, though, the more it appears that the bragged-about simplification is pretty superficial. Many of the original exceptions and additional requirements that make a child qualify in one case but not in another are preserved, and I wouldn’t be surprised to find that the number of definitions of “child” has shrunk from five to just over four.
That said, the law has changed. Those of you who are resisting taxes by keeping your income low and who are relying on child dependents, on head-of-household status, on the earned income tax credit, on the per-child tax credit or on the dependent-care credit should pay close attention to this law and make sure that the rug isn’t getting pulled out from under you. It is also possible that a child that did not qualify you for some of these in the past will in the future. The revenue effects estimates I’ve seen suggest that more taxpayers will be eligible for lower taxes as a result of these changes, so until I know better I’m treating this as good news.