3 Ways Taxes Have Changed in the Last 20 Years -- and How It Benefits Middle-Class Filers
A lot has changed over the last 20 years — from fashion to pop music to even the way people file their taxes. Some of those changes have been pretty cringe-worthy. Low-rise jeans, anyone? Other changes — including several major tax updates — have been far more welcome, especially for middle-class taxpayers.
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MoneyLion was curious about how taxes have evolved over time. While we don’t have access to a time machine (or any desire to return to the era of rhinestones and trucker hats), we do have access to Ashley Akin, CPA and senior contributor at CEP DC. She breaks down a few of the most meaningful ways taxes have changed over the last two decades — and how those changes can benefit middle-class filers today.
There’s Been an Increase in the Standard Deduction
Akin says one of the most noticeable tax changes for middle-class families has been the significant increase in the standard deduction, particularly after the Tax Cuts and Jobs Act of 2017.
Twenty years ago, many families saved receipts for expenses such as medical bills, charitable donations, or mortgage interest so they could itemize deductions and reduce their taxable income. That was a lot of record-keeping, especially for larger households.
But now, the standard deduction is often larger than what many middle-class filers would claim through itemizing, making the process simpler and, in many cases, more tax-efficient.
In plain terms: Taking the standard deduction is often easier — and may even lower a filer’s tax bill more than itemizing.
“So more families may be able to quickly finish tax preparation without feeling like they are missing out on money,” Akin said.
The Child Tax Credit Has Increased
Another tax change middle-class families can celebrate is the expansion of the Child Tax Credit.
“Years ago, families would receive about $1,000 for each of their children in the form of a tax credit. Now that number has gone up to about $2,200,” Akin said. “A family with two children could now receive about $4,400 from the IRS as a tax credit.”
That means a family with two qualifying children could potentially reduce its federal tax bill by as much as $4,400. While not every filer qualifies for the full amount, the higher credit and expanded income thresholds mean more middle-class families are eligible than in the past.
That extra money can go a long way toward everyday expenses like food, gas, rent or mortgage payments.
529 Plans Have Become More Flexible
For middle-class families, 529 college savings plans have long helped make the cost of higher education more manageable. Over the years, however, these plans have become far more flexible.
“A 529 plan is a type of education savings plan designed to help families save for higher education expenses,” Akin said. “The money saved in a 529 plan grows tax-free and can be withdrawn at any time to pay for education expenses.”
Originally, those costs were limited primarily to college and graduate school expenses. That has changed. The Tax Cuts and Jobs Act of 2017 allowed families to use up to $10,000 per year from a 529 plan for K–12 tuition. Later, the SECURE Act expanded eligible uses to include student loan repayment.
Most recently, SECURE Act 2.0 added another major benefit: Unused 529 funds — up to $35,000 over a lifetime — can now be rolled into a Roth IRA for the beneficiary, provided certain requirements are met. This change helps families avoid taxes and penalties if a child doesn’t use all the money saved for education.
The Bottom Line
Daily life has changed a lot for middle-class families in the past 20 years — sometimes for better, sometimes not (looking at you, grocery prices). But when it comes to taxes, several key changes have worked in the middle class’s favor.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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