Don't Mess With Taxes

One, in addition to being the loneliest number, also soon could cost some Chinese taxpayers when it comes to their family size.

Three years ago, China abandoned its policy, which had been in place since 1979, of fining people for having more than one child. Now Chinese leaders want to encourage people to have more kids.

The reason for wanting more babies is that China's previously restrictive family planning policy has produced a growing aging society and a shrinking young population. That's not healthy for any economy. 

To remedy that situation, China is exploring a variety of proposals, including a fertility fund and a possible education-related tax break.

Those efforts, some which are more likely to eventually pass, is why 1, as in China's one-child policy, also is this week's By the Numbers figure.

And the Chinese situation is just the last in along series of the merging of taxes and social policy globally, including here in the United States with the recent tax code changes to the Child Tax Credit.  

Pro-birth benefits: A proposal by two Nanjing University professors to encourage couples to have more kids has generated much debate.

The academic pair suggests that Chinese citizens younger than 40 be required to pay, based on their salaries, into a special account, quickly dubbed a fertility fund.

They could get their money back when they have a second child.

The idea is that the account would cover income lost by women who stop working during pregnancy and for a few years after delivering a child.

Folks who opted not to increase their family size wouldn't be able to get to their contributions until they retire.

No-birth penalty: That was followed by another proposal, this time from a China University of Political Science and Law prof, to economically punish non-parents.

In addition to the fertility fund, this Ivory Tower resident suggests that that the government also tax DINK (Dual Income, No Kids) families to raise more money for social support of families.

Education tax break: Those broader family-friendly proposals have been narrowed to one that looks to have more chance of being implemented, a tax break for couples to cover their children's education related expenses.

The change to help parents pay for their kids' education was released in June by the Standing Committee of the National People's Congress (NPCSC), the country's top legislative body, as a draft amendment to China's personal income tax law.

It's now in its final stages of public consultation.

Unusual public push-back: While education is revered in China, this proposal, like the other suggestions to encourage larger families, have not been well-received, even in a country where dissent generally is frowned upon.

Some Chinese have gone online to deride the proposals as yet more attempts by the Chinese government to pressure people to get married and have children.

As for the education tax break, critics say it won't work because people who don't want children in the first place won't "rush to have one, because education fees cost far more than this tax break."

Others have also slammed it as an unfair single's tax, although the educational tax benefit obviously wouldn't apply to married people who don't have children.

Others questioned the general idea of tax benefits for families.

"Tax incentives or cash bonuses for families with more than one child are actually taxes transferred from other taxpayers to these families. Is this a fair practice?" asked one skeptical Chinese online commenter.

A more disdainful remark suggested that instead of a creating a fertility fund or a DINK tax, China consider taxing stupid suggestions.

Sounds like government tax and financial policy is viewed much the same way by taxpayers worldwide.

Global pro-family policies: China's latest foray into family-friendly tax and other policies is nothing new globally.

The Australian government offers a cash subsidy of around $1,500 for a family's first child.

Russia hands out cash coupons worth almost $9,000 for families with two or more children.

Singapore offered a generous $10,000 worth subsidy for a family's first and second children, with another $16,500 bonus for third and additional childbirths.

Hong Kong officials are considering a proposal that would extend maternity leave and offer more childcare services.

Bigger U.S. break for children: Here in the United States, the Tax Cuts and Jobs Act (TCJA) expanded the popular Child Tax Credit (CTC).

Before the new tax law, the CTC was worth up to $1,000 per qualifying child, with the credit refundable for certain taxpayers within specific income ranges.

Now, for tax years 2018 through 2025, the CTC is worth up to $2,000 per qualifying child. That's a youngster who, as under the previous law, is younger than age 17 at the end of the year.

The refundable portion of the CTC now is as much as $1,400. The refundable credit amount will be adjusted for inflation.

The earned income threshold to get the refundable portion is slightly lower under the TCJA, going from $3,000 to $2,500. Plus, the CTC credit phaseout earnings for single taxpayers go from $75,000 under old law to $200,000; from $110,000 for joint filers to $400,000 for married couples.

Tight CTC tests: While the Child Tax Credit is one of the easier tax credits to claim, it still has some requirements, which were retained from its prior incarnation and even tightened somewhat under the new tax law, before a taxpayer can benefit from it.

The TCJA now specifies that a dependent child must have a valid Social Security number in order to be claimed for the nonrefundable and refundable portions of the credit.

Also, the youngster must be related to the taxpayer, for example, being a daughter, son, stepchild, foster child, adopted child, grandchild, etc.

The child must live in the claiming taxpayer’s home more than half the year. Divorced or separated? No worries as far as the CTC. There are special rules for claiming the credit in these cases.

The youngster also cannot provide more than half of his or her own support. Not a problem for most families, but if your kid is an entrepreneurial phenom, be careful.

If you use a tax preparer, he or she still has to meet strict due diligence requirements in completing returns that claim the CTC.

Finally, remember that the law (enacted before the TCJA) still requires the Internal Revenue Service to hold onto any tax refunds until mid-February for filers who claim the Child Tax Credit.

You also might find these items of interest:

• 8 ways the new tax law does — and doesn't — affect paying school costs
• Adoption tax credit and other family-related 2018 inflation amounts changed by new tax law
• Family-related tax law changes mean that taxpayers with dependents need to check their withholding