The recent tax changes announced by the Internal Revenue Service (IRS) for 2025 are likely to impact the tax obligations of many families across the country. These updates include revisions to key tax credits such as the Child Tax Credit and the Earned Income Tax Credit (EITC), as well as other inflation-related adjustments.
While these changes aim to align with economic realities and ease the financial strain for many, there are some important aspects to understand, particularly when it comes to eligibility and benefits. The IRS has confirmed that while certain income thresholds and deductions have been adjusted, the Child Tax Credit will remain largely unchanged in 2025. Nonetheless, these adjustments are intended to provide families with some relief as they navigate rising costs in an inflationary environment.
The child tax credit in 2025
The Child Tax Credit is one of the most anticipated benefits for families with children under the age of 17. As of 2025, this credit will remain the same as in 2024, meaning that parents will be able to claim up to $2,000 per qualifying child. Of this amount, up to $1,700 is refundable, which means that families may receive this portion of the credit even if they owe no federal income tax.
In order to qualify for the full credit, families must have an adjusted gross income (AGI) of less than $400,000 if they file jointly, or under $200,000 if filing as an individual. This ensures that the credit is targeted towards middle-income families, with higher-income households facing a phaseout in the benefits they can claim.
The IRS has also maintained that the refundable portion of the Child Tax Credit is designed to help low-income families by offering financial support, even when their tax liabilities are low or nonexistent. This can be particularly beneficial for families where parents earn below-average incomes, as it helps offset the costs of raising children, which can otherwise put a strain on household budgets.
Changes to income tax credits
One of the most significant updates for 2025 relates to the Earned Income Tax Credit (EITC), a benefit aimed at assisting low- and moderate-income households. This credit not only reduces the amount of tax owed, but in many cases, it results in a refund. The IRS has increased the maximum amounts that can be claimed under the EITC to reflect inflationary pressures, ensuring that the credit remains a meaningful form of relief for qualifying households.
For families with three or more children, the maximum EITC in 2025 will rise to $8,046, up from $7,830 in 2024. Families with two children can claim up to $7,152, while those with one child may receive up to $4,328. Even taxpayers without children will benefit, as they will be able to claim a maximum of $649, an increase from previous years.
To qualify for the EITC, households must meet specific income thresholds. In 2025, married couples with three or more children must have an AGI below $68,675 to claim the credit, while single filers, heads of households, or widows with the same number of children must have an AGI below $61,555. These limits ensure that the EITC is targeted toward those who are most in need of financial assistance, providing significant support to working families that may struggle to meet their tax obligations.
The increase in the EITC is particularly noteworthy because it represents a key way for the government to provide assistance to lower-income households. This credit is one of the largest forms of direct aid to working families and has a direct impact on their financial well-being, especially in years where inflation affects purchasing power. The increase in the maximum credit means that eligible households will receive more money, helping to cover essential expenses such as housing, childcare, and transportation.
Other important tax adjustments for 2025
The tax changes for 2025 extend beyond just the Child Tax Credit and the EITC. The IRS has also adjusted income tax brackets and long-term capital gains tax rates to account for inflation. Additionally, the gift and estate tax exemption has been increased, allowing individuals to transfer more money to their heirs without facing extra taxes.
These adjustments are part of the IRS’s routine inflation-related changes aimed at preventing taxpayers from owing more simply because their incomes have increased in nominal terms. In other words, while wages may rise with inflation, these increases don’t necessarily reflect a gain in purchasing power, and the IRS seeks to avoid penalizing taxpayers for this.
For instance, in 2025, higher income brackets will allow taxpayers to earn more before they move into the next tax bracket, potentially reducing the amount of tax owed by many families. This is particularly relevant for those who may have received raises or bonuses that push them into higher tax brackets.
The long-term capital gains tax rates, which apply to the sale of assets held for more than a year, have also been adjusted. For taxpayers who are planning to sell investments or other assets, understanding these new thresholds is crucial, as they may be able to save money on the taxes owed on any profits.