Reducing the amount of federal taxes owing helps families with dependent children by means of the child tax credit, a financial advantage. Its main goal is to relieve some of the financial load of raising American children. Sometimes it can even lead to a refund should the credit surpass your taxes due.
Under the American Rescue Plan, this credit had notable growth in 2021 providing advance monthly payments to millions of families impacted by the epidemic. Although these temporary improvements have subsequently run out, it is likely that other modifications affecting the child tax credit will be implemented before 2025.
How the child tax credit currently works
For each dependent child under the age of 17, the child tax credit now lets families claim up to $2,000. There is up to $1,500 refundable out of this total. This implies that you might get some credit as a refund even if you do not owe federal taxes.
Still, economic restrictions define who qualifies for the complete credit. Families making more than $200,000 yearly (for single taxpayers) or $400,000 (for joint filers) would see their credit dropped as their income rises.
Potential changes to the child tax credit in 2025
Many analysts predict that modifications to the child tax credit may be on store as we approach the next presidential election and tax reform remains a divisive issue. Of the most talked about ideas are the following:
Increasing the refundable amount
Some legislators most often ask for modifications to raise the refundable component of the child tax credit. Though their tax burden is either limited or nonexistent, there have been suggestions to increase the refund so that lower-income families could get more substantial financial support instead of the present $1,500 cap.
Restoring advance payments
Another prospect is the return of advance monthly payments, modeled by what was done in 2021. By allowing families to get part of the credit all year long, these advance payments gave more quick financial assistance to meet daily needs. Though this legislation was only temporary, some legislators are pushing for it to be a permanent component of the child tax credit program.
Including children over the age of 17
Another suggestion under consideration is giving credit to dependant children aged more than seventeen. More families—especially those with children still living at home or pursuing higher education—would be eligible for the program thanks to this modification.
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.