The child tax credit is a financial benefit designed to assist families with dependent children by reducing the amount of federal taxes owed. Its primary purpose is to ease the financial burden associated with raising children in the United States. In some cases, it can even result in a refund if the credit exceeds the taxes you owe.
In 2021, this credit saw significant expansion under the American Rescue Plan, offering advance monthly payments that helped millions of families during the pandemic. While these temporary enhancements have since expired, there is a possibility that further changes impacting the child tax credit could be introduced by 2025.
How the child tax credit currently works
At present, the child tax credit allows families to claim up to $2,000 for each dependent child under the age of 17. Out of this total, up to $1,500 is refundable. This means that even if you don’t owe federal taxes, you could still receive a portion of the credit as a refund.
However, there are income limits that determine who is eligible for the full credit. Families earning more than $200,000 annually (for individual filers) or $400,000 (for joint filers) will see their credit reduced as their income increases.
Potential changes to the child tax credit in 2025
As we move closer to the next presidential election and tax reform continues to be a hot topic, many experts anticipate that changes to the child tax credit could be on the horizon. Among the most discussed proposals are the following:
Increasing the refundable amount
One of the most frequently requested changes by some lawmakers is to increase the refundable portion of the child tax credit. Instead of the current $1,500 limit, there have been proposals to raise the refund so that lower-income families could receive more significant financial support, even if their tax liability is minimal or nonexistent.
Restoring advance payments
Another possibility is the reinstatement of advance monthly payments, similar to what was implemented in 2021. These advance payments allowed families to receive part of the credit throughout the year, providing more immediate financial relief to cover household expenses. Although this measure was temporary, some politicians are advocating for it to become a permanent feature of the child tax credit program.
Including children over the age of 17
One more proposal being considered is extending the credit to cover dependent children who are older than 17. This change would allow more families to qualify for the program, particularly those with children still living at home or pursuing higher education.
How to prepare for potential changes
To ensure you maximize your child tax credit benefits in 2025, there are a few steps you can take:
- Stay informed about tax reforms: Tax laws can change frequently, and it’s essential to stay updated on any adjustments that could impact your eligibility for the child tax credit.
- Keep an eye on tax reform news, and consult official government sources to get the latest information.
- Review your eligibility every year: Be sure to evaluate your tax situation each year to confirm that you continue to qualify for the credit. Changes in your income, marital status, or the number of dependents you claim can affect the amount of credit you are eligible to receive.
- File your taxes on time: While it may seem obvious, it’s crucial to file your taxes by the deadline. Failing to do so could result in missing out on claiming the child tax credit or experiencing delays in receiving your refund.