In 2025, the Internal Revenue Service (IRS) is implementing new tax adjustments to account for inflation. These changes could impact families’ federal tax liabilities. While some tax credits and thresholds will increase, others will remain unchanged. Families need to understand how these changes may affect their taxes, especially with the expiration of certain provisions from the 2017 Tax Cuts and Jobs Act.
Child Tax Credit for 2025
The child tax credit will remain the same in 2025, with a maximum of $2,000 per child under 17. Families can claim a refund of $1,700, even if they owe no taxes. Income limits also remain unchanged: $400,000 for married couples and $200,000 for single filers. However, the current terms are set to expire after 2025, when the credit could drop to $1,000 per child.
Earned Income Tax Credit (EITC) for 2025
The Earned Income Tax Credit (EITC) will see higher amounts in 2025, providing relief for low- and middle-income families. For example, families with three or more children can receive up to $8,046, an increase from $7,830 in 2024. The income threshold to qualify has also been raised to $68,675 for married couples with three or more children.
| Tax Benefit | 2024 | 2025 |
|---|---|---|
| Earned Income Tax Credit (3+ children) | $7,830 | $8,046 |
| Child Tax Credit Refundable Portion | $1,700 | $1,700 |
| Adoption Credit | $16,810 | $17,280 |
| Gift Tax Exclusion | $18,000 | $19,000 |
| Income Thresholds | 2024 | 2025 |
|---|---|---|
| EITC (Married, 3+ children) | $66,819 | $68,675 |
| EITC (Single, 3+ children) | $59,899 | $61,555 |
| Investment Income Limit | $11,600 | $11,950 |
Tax Brackets Adjusted for Inflation
The IRS will adjust federal income tax brackets and long-term capital gains tax brackets for inflation in 2025. This means taxpayers won’t face higher liabilities just because their incomes increase due to inflation.
Adoption Credit and Gift Tax Exclusion
The adoption credit for qualified expenses will rise to $17,280 in 2025, up from $16,810 in 2024. Additionally, the annual gift tax exclusion will increase to $19,000, allowing taxpayers to give more to their children without incurring a gift tax.
Estate and Gift Tax Adjustments
The estate and gift tax exemption amounts will also be increased in 2025 to account for inflation. Families planning large inheritances or gifts should review these new limits to optimize their tax strategies.
Investment Income Limits
For families seeking the Earned Income Tax Credit, the maximum investment income allowed has been increased to $11,950 in 2025. Exceeding this amount will disqualify taxpayers from receiving the EITC.
Conclusion
The 2025 tax changes offer both opportunities and challenges for families. While many credits and thresholds have been increased to match inflation, families must be prepared for higher liabilities once the current provisions expire after 2025. Staying informed about these adjustments can help families plan and potentially reduce their tax burdens.
FAQ’s
What is the child tax credit for 2025?
The maximum child tax credit is $2,000, with a refundable portion of $1,700.
What is the EITC for families with 3+ children in 2025?
The maximum EITC for 2025 is $8,046.
Has the gift tax exclusion changed for 2025?
Yes, the exclusion increased to $19,000 in 2025.
What happens to the child tax credit after 2025?
Unless extended, it is set to drop to $1,000 per child.
How do inflation adjustments affect tax brackets?
Tax brackets will be adjusted for inflation, preventing higher taxes due to increased income from inflation.