Trump's Tax Plan: Childcare
Kelvey Vander Hart, Fiscal Policy Contributor
This week, we will examine the last and most interesting point of Trump’s tax plan: reduce the cost of childcare by allowing families to fully deduct the average cost from their taxes. According to his campaign website, these are a few of the main points of Donald Trump’s childcare plan:
- Rewriting the tax code to allow working parents to deduct from their income taxes child care expenses for up to four children and elderly dependents.
- Allow parents to enroll in tax-free dependent care savings accounts for their children or elderly relatives.
- Provide low-income households an Expanded Earned Income Tax Credit – in the form of childcare rebate – and a matching $500 contribution for their savings accounts.
- Provide 6 weeks of paid leave to new mothers before returning to work.
We will take this point by point.
Rewriting the tax code
Trump’s tax plan views care for children and the elderly as a tax-deductible family expense. Currently, the only option when it comes to child or elder care and taxes is to get a tax credit. This credit only allows up to 35 percent reimbursement of 3,000 dollars for one child or dependent, or 6,000 dollars for two children or dependents.
According to a policy sheet published by the Trump campaign, this deduction will be applicable for up to four children or dependents per family (including working AND stay-at-home parents). Individuals who earn more than $250,000 per year are not eligible. Under this deduction, a family that currently earns $70,000 a year and is in the 12% tax bracket that spends $7,000 per year on child care would qualify for an $840 per year deduction from their taxes.
Allow enrollment in tax-free dependent care savings accounts
Currently, the only dependent care savings accounts that are available are called Dependent Care Flexible Spending Accounts (FSAs). These accounts are problematic in that they are only available through funds taken out of your paycheck by certain employers, and have tighter stipulations. Trump’s proposal includes a plan for accounts called Dependent Care Savings Accounts (DCSAs).
hese savings accounts are available to everyone, and allow people to set aside extra money into a tax deductible fund to be used for a variety of things in the care of children or dependents. They also allow tax-free appreciation from year-to-year. These funds can be used for traditional child care, after-school enrichment programs, and school tuition (effectively improving school choice) in the case of a minor. In the case of an elderly dependent, the funds are available for a variety of categories, including long-term care and in-home nursing care.
A fairly simple plan, yet, there is a problematic section for anyone who calls themselves a fiscal conservative. Trump’s plan includes the government depositing $500 a year into the DCSAs of low-income families when they deposit the first $1,000 of each year. This would only increase government spending instead of creatively solving the problem.
Expanded Earned Income Tax Credit
he Earned Income Tax Credit (EITC) is a credit given to families in the low to moderate income levels. This is a standard tax rebate, and Trump wants to expand availability. Currently, these are the listed qualifications given by the IRS in order to receive the tax credit:
- You, your spouse (if you file a joint return), and all others listed on Schedule EIC, must have a Social Security number that is valid for employmen
- You must have earned income from working for someone else or owning or running a farm or business
- Your filing status cannot be married filing separately
- You must be a U.S. citizen or resident alien all year (If you are a nonresident alien married to a U.S. citizen or resident alien, see Publication 519, U.S. Tax Guide for Aliens)
- You cannot be a qualifying child of another person
- You cannot file Form 2555 or Form 2555 EZ (related to foreign earned income)
- You must meet the earned income, AGI and investment income limits (income limits change each year), see EITC Income Limits for the tax year amounts
- And you must meet one of the following:
- Have a qualifying child (see who is a qualifying child below)
- If you do not have a qualifying child, you must:
- not qualify as a dependent of another person.
- live in the United States for more than half the year, and
- be age 25 but under 65 at the end of the year,
6 weeks of paid maternity leave
In the United States, if an employer decides to provide paid maternity leave, it lasts for an average of 2 weeks. Although this leans much further left, the strategy Trump has laid out for paid maternity leave is fairly logical. This will be created through unemployment insurance, and will be funded through reduction in spending elsewhere and reallocation of money. The goal is to have the rates for employers stay the same while new mothers are paid as though they were getting 6 weeks of unemployment pay.
These concepts are definitely new directions for a Republican president to go, though they certainly are creative. Time will tell if Trump is able to effectively impact these plans and what effect they have on parents in the workplace.
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