Child Tax Credit Changes for the 2025 Tax Year

The Internal Revenue Service (IRS) recently announced changes to some tax credits that will be enacted for the 2025 tax year. This means that these changes will not apply to the current (2024) tax year or returns filed in spring 2025 but may affect taxpayers’ filings in 2026.

More specifically, these changes will apply to the Child Tax Credit, Adoption Tax Credit, Child and Dependent Care Tax Credit and the Earned Income Tax Credit (EITC). By knowing what to expect, taxpayers can be prepared when it comes time to file.

Child Tax Credit: What’s Changing?

Many families rely on the Child Tax Credit (CTC) to help offset the costs of things like childcare. For 2025, the refundable portion of the CTC will remain $1,700—which means that applicable taxpayers can get up to $1,700 back after they file their taxes. However, families should also be aware that some states offer an additional state child tax credit that could put more money in their pockets. Currently, 14 states offer child tax credits in addition to the federal tax credit, so this may be something worth exploring for taxpayers.

Adoption Tax Credit: What’s Changing?

For those who are considering adoption in the next few years, it’s important to be aware of some changes to the Adoption Tax Credit starting in 2025. Specifically, the federal Adoption Tax Credit will increase from $16,810 in 2024 to $17,280 in 2025. This nonrefundable tax credit can help to offset the costs associated with adopting a child while excluding employer-provided adoption assistance from a taxpayer’s taxable income.

Taxpayers should keep in mind, however, that their specific credit amount will vary based on their modified adjusted gross income (MAGI) and that the credit is nonrefundable—meaning any amount that exceeds a taxpayer’s liability for the year will be carried into the next year.

Child and Dependent Care Tax Credit: What’s Changing?

The Child and Dependent Care Tax Credit (CDCT) is another nonrefundable tax credit that is meant to help taxpayers by offsetting the costs of childcare for parents and guardians. The specific amount of this credit is directly tied to a taxpayer’s adjusted gross income (AGI) and is a percentage of that amount—typically somewhere between 20% and 35%.

For taxpayers with an adjusted gross income of $0 to $15,000, the credit is maxed out at 35%. For those with AGIs of $15,000 to $43,000, the credit is between 20% and 35%. Finally, those earning an AGI of $43,000 or more each year receive the credit at 20%.

What About the Earned Income Tax Credit?

Last but not least, the Earned Income Tax Credit (EITC) is available for those who earn an income that is below a specific amount. The number of qualifying children or dependents in the household can also affect the amount of this credit.

For 2025, the amount of this credit is increasing from $7,830 to $8,046 to account for inflation. Keep in mind that this is the amount for households with three qualifying children, and the amount gradually decreases for households with fewer children or dependents.

It is also worth noting that starting in 2025, taxpayers who earn more than $11,950 in investment income during the year will no longer be eligible for claiming this credit.

Is This All Set in Stone?

While these changes are all current as of November 2024, it is important to note that this is an election year. When Donald Trump is sworn in in January of 2025, there is always a possibility that more changes will occur. Regardless, those who rely on these credits to help pay for child-related expenses should keep an eye on news related to any future changes.

The Bottom Line Come Tax Time

Changes to tax credits are often beneficial, especially when tax credit amounts are increased to account for inflation and other factors. The good news is that these changes being implemented in 2025 should benefit most taxpayers—but it’s still important to plan ahead. For those who will be affected by these changes, now is a good time to set up a consultation with a financial advisor and/or tax planner to learn more about how these new credit amounts may affect their bottom line when it comes time to file a return.

If you have any questions or would like additional information, please contact our tax professionals.