The child tax credit has long served as a reliable buffer against the rising cost of raising children. However, low-income families often face barriers due to ineligibility for the legal income filing threshold. The structure may deprive these families of the financial relief the child tax credit provides.
In light of recent enhancements made to the Tax Cuts and Jobs Act by the One Big Beautiful Bill Act in July 2025, the child tax credit will take on a new outlook beginning in 2026. With freshly introduced provisions impacting the value of the child tax credit and eligibility requirements, you should learn what this expansion means for your family and its impact on state tax credits.
This guide breaks down the child credit expansion and highlights the critical details low-income families must know about the changes.
The child tax credit is a program designed to provide financial relief to American taxpayers with dependent children within a specific age bracket. It aims to address income volatility and reduce poverty and hardship faced by families with children. The Taxpayer Relief Act of 1997 initially introduced the child tax credit program, which provided a nonrefundable tax credit of $400 per child for eligible families in 1998 and $500 for the following years.
Through the years, several federal legislations have modified the law to accommodate lower- and higher-income families. By 2017, the tax credit had increased to $2,000 per child, with a refundable amount limit of up to $1,400, as per the Tax Cuts and Jobs Act of 2017.
The American Rescue Plan temporarily increased this amount to $3,600 per qualifying child under age 6 and $3,000 per qualifying child under age 18, paid monthly for the 2021 tax year only. The credit was fully refundable and readily accessible to low-income families due to more relaxed eligibility criteria. In subsequent years up to 2025, the child tax credit amount reverted to $2,000.
Before the modification to the Tax Cuts and Jobs Act by the One Big Beautiful Bill Act, several of its provisions addressed various aspects of child tax credits and related claims. While the new bill retains some of these previous provisions, it makes a few enhancements to others. Here are several details low-income families should pay attention to.
One significant change the OBBBA made to the child tax credit is the permanent increase in the minimum amount per child, from $2,000 to $2,200, starting in 2025. This nonrefundable credit amount will be subject to annual adjustments to account for inflation, beginning in 2026.
Additionally, the new bill increases the refundable portion of the child tax credit, also known as the additional child tax credit, to a maximum of $1,700 in 2025. It also makes this refundable amount permanent and inflation-indexed from 2026.
The OBBBA expands the operation of tax-incentivized saving programs such as 529 plans, which help parents offset educational expenses. Effective from 2025, parents and students can now use 529 plan funds to cover qualified K-12 expenditures other than tuition payments, including tutoring fees and the cost of books. Beginning in 2026, parents will also be able to withdraw up to $20,000 as opposed to the previously approved amount of $10,000.
To qualify for the pre-OBBBA child tax credit, your modified adjusted gross income must be at or below $200,000 for single filers and $400,000 for joint filers. The credit phases out above this threshold, reducing by $50 for every additional $1,000 in income — the IRS adjusts this phaseout credit amount annually for inflation. While the bill didn’t change this provision, it made it permanent.
The TCJA provides for a nonrefundable $500 credit for families with dependents who don’t qualify for the child tax credit. This provision was to be in force from 2018 through 2025. The OBBBA permanently retains this credit, following the same income phaseout rules applicable to the child tax credit. The non-child dependent credit remains fixed and not indexed to inflation.
Eligible families can receive a child and dependent care credit for children under 13 and other qualifying dependents. This nonrefundable credit claim aimed to help families offset expenses incurred for child and dependent care. Regulations cap qualified expenses at $3,000 per child or dependent, and $6,000 for two or more children or dependents.
Essential provisions of the child and dependent care credit remain unchanged with the child tax credit expansion under the OBBBA. However, the bill restructures the income-based phases according to the following schedule.
Here’s how this breaks down for single filers with an adjusted gross income.
Here is what this looks like for married filing jointly filers with an adjusted gross income.
Under the TCJA’s previous provisions, eligible taxpayers could claim a credit to offset related costs of adopting children under 18 or those physically or mentally incapable. The OBBBA retains this provision. The only change it implements is that qualified taxpayers can now get refunds of up to $5,000 of the adoption credit.
The OBBBA retains several eligibility criteria for child tax credit applicable under the TCJA, such as age, residency, dependency and citizenship requirements. However, it introduces a few new requirements.
Several states expanded their state tax credits following the 2025 expansion of the federal child tax credit.
The OBBBA maintains specific provisions of the TCJA that may continue posing a challenge for low-income families. In addition to the minimum earning requirement this new bill imposes, the following elements may limit low-income families’ access to the child tax credit.
Tax law changes can present new challenges and learning curves. Thankfully, you can rely on professional help from Polston Tax. We keep our finger on the pulse of new changes in the tax landscape, and we are here to help you understand how the expansion of the child tax credit may impact your returns. Contact us to schedule a free consultation today.
