After taxes and entitlement program benefits are accounted for, a single parent with a salary of $4,800 earns nearly the same take-home pay as a single parent with a $21,000 salary, according to a report from the Tax Foundation.
The report, titled "Income Tax Illustrated," evaluates two examples of a single-parent family with one child. In one example, a single parent earns $4,800 in annual salary before taxes, but after accounting for entitlements, this family’s take-home earnings climbs to $22,090. Benefits included in this calculation comes from Medicaid, Temporary Assistance for Needy Families, the Children’s Health Insurance Program, food stamps, and the Housing Choice Voucher program.
In another example, a single parent who earns $21,000 before taxes receives $24,057 in take-home earnings. Even though this family earned $16,200 more than the previous example, they only see an additional $1,967 more in take-home income than a family that earns far less.
"As low-income households earn more money, not only do their tax burdens grow rapidly, but they also receive fewer benefits from federal social assistance programs," the report says. "In fact, individuals who move to higher paying jobs sometimes end up with less overall disposable income, after taxes and transfers."
"In this way, the federal system of taxes and benefits distorts individuals’ work decision, making it more difficult for low-income individuals to increase their incomes through the labor market," the report says.
"The federal government’s system of taxes and assistance programs for low-income families is not very well-designed," said Scott Greenberg, an analyst at the Tax Foundation. "For households making under $30,000, there are a number of transfer programs and tax credits that phase out simultaneously, making it difficult for these families to increase their take-home incomes by moving to a higher-paying job."