Beyond Head of Household: Rethinking the Taxation of Single Parents

Abstract

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 2013 HHFS saved qualifying taxpayers in the 25th percentile of the income distribution under $100 a year compared to almost $2,000 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 are likely to have less ability to pay. 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 $384 per child for households headed by single parents.