How The OBBBA’s Permanent Expansion Of The Child Tax Credit Can Benefit You
The One Big Beautiful Bill Act (OBBBA) extended and enhanced the Child Tax Credit (CTC). The CTC was first established in 1997 and provides a tax credit for each of a taxpayer’s dependent children who are 17 years old and younger. Over time, the credit has been subject to various income limits and expansions. To qualify for the CTC, the child must meet certain age, citizenship, and dependent tests.
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Evolution Of The Child Tax Credit
In recent history, the CTC was expanded under the Tax Cuts and Jobs Act (TCJA) for tax years 2018 through 2025. During this period, the credit was increased to $2,000 per child, with up to $1,400 refundable (adjusted for inflation), and the income phase-out thresholds were raised to $400,000 for married couples filing jointly and $200,000 for all other taxpayers.
For reference, the maximum refundable amount is $1,700 per qualifying child for 2024 and 2025. For tax year 2021 only, the CTC was further increased under the American Rescue Plan Act (ARPA) to $3,600 for children six years old and younger and $3,000 for children ages six through 17, among other enhancements. The CTC was scheduled to revert to pre-TCJA levels for tax years after 2025, which would have reduced the tax credit to a maximum $1,000 refundable credit and phase-outs of $110,000 for married couples filing jointly, $75,000 for taxpayers filing as single or head of household, and $55,000 for taxpayers filing separately.
How The OBBBA Changes The Child Tax Credit
The OBBBA made the expanded CTC permanent by increasing the maximum credit to $2,200 per child for tax years after 2024, with inflation adjustments for future years. The phase-out thresholds and refund limits remain the same as under the TCJA.
Impact Of The Child Tax Credit: An Example
To illustrate the differences in the CTC over time, consider a married couple with two children, a six-year-old and an eight-year-old. The couple makes $200,000 annually.
- 2024 (TCJA): Total tax credits of $4,000, of which up to $3,400 is refundable
- 2025 (had TCJA expired): Total tax credits of $0. The couple’s total income of $200,000 means that the credit is completely phased out, and no benefit is available.
- 2025 (OBBBA): Total tax credits of $4,400, of which up to $3,400 is refundable
Summary & Next Steps
The OBBBA’s expansion of the Child Tax Credit will serve parents well by providing a valuable credit to offset taxes due and, in certain cases, may assist in providing additional funds through refundable tax credits.
Contact GBQ for expert assistance in understanding and maximizing your Child Tax Credit benefits under the OBBBA as part of your holistic tax planning strategy. Our team is ready to help you navigate these changes and optimize your tax strategy.
By Jennifer Zimmerman, CPA, Director, Tax & Advisory
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