We have been fielding many questions from clients and the community about what we expect under the new Trump Administration. Although it will be early 2017 before we get any specifics on the future pending legislation, Trump has made various announcements about the scope of his overall tax plan- which will be of similiar magnitude of the Tax Reform Act of 1986. In the first of a few posts- child care expenses are of a great concern to many of our clients. Key highlights include:
- New Above-the-Line deduction and a new tax-preferred savings account to encourage families to set aside funds for caregiving expenses
- New Above-the-Line Deduction will now cover up to four (4) children per family from birth to age 13 with the deduction capped at “the average cost of child care” based on he child’s age and state of residence. The deduction would be available to itemizers and non-itemizers and would apply to families that use paid child care providers as well as families that rely of a stay-at-home parent or unpaid relative to meet their child care needs
- The deduction would be limited to couples earning up to $500,000 a year and individuals earning up to $250,000.
- Familys will no income tax liability will potentially receive assistance though a “spending rebate” through the earned income tax credit capped at “half the payroll taxes paid by the taxpayer” (lower earning parent) and subject to a limitation of $31,200 for an individual or $62,400 for joint filers.
- A similar above-the-line deduction would be available for home care or adult day care for elderly dependent relatives – current proposed would be a cap of $5,000 a year, indexed for inflation.
These proposals are a major change from the current code which offers a small tax credit of based on spending of up to $3,000 per child, max of $6,000 subject to declining percentages.
Source: Deloitte- 2017 essential tax and wealth planning guide