The IRS has announced important tax updates for 2025, impacting various credits, income thresholds, and other key areas. Among these changes, adjustments to the Child Tax Credit and Earned Income Tax Credit (EITC) stand out, both aimed at addressing rising inflation and providing targeted support to middle- and lower-income families. However, the changes have specific eligibility requirements, so knowing them can help families make the most of their potential benefits in the coming year.
Child Tax Credit
The Child Tax Credit, an essential tax benefit for families, allows parents to claim up to $2,000 per child under 17. For 2025, this amount remains consistent with previous years, with up to $1,700 of the credit being refundable. This refundability is particularly valuable for families with lower income, as it allows them to receive a portion of the credit as a refund even if they owe little to no federal income tax.
To qualify for the full Child Tax Credit in 2025:
- Married couples filing jointly must have an adjusted gross income (AGI) under $400,000.
- Single filers or heads of household should have an AGI below $200,000.
Households exceeding these limits may experience a gradual phaseout of the credit, meaning their eligible amount decreases as their income rises above these thresholds.
The refundable portion of this credit is a crucial support mechanism for low-income families, offering financial relief to help with the costs of raising children, including necessities like food, education, and healthcare.
Child Tax Credit
| Criteria | AGI Limits | Max Credit per Child | Refundable Portion |
|---|---|---|---|
| Joint Filers | < $400,000 | $2,000 | $1,700 |
| Single Filers / Head of Household | < $200,000 | $2,000 | $1,700 |
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is one of the most significant supports for low- and moderate-income families, providing either a tax reduction or a refund, depending on eligibility. With the IRS raising EITC limits for 2025, many families will see an increase in potential benefits to help offset higher living costs.
For 2025, the EITC maximums are as follows:
- Families with three or more children can claim up to $8,046.
- Families with two children can claim up to $7,152.
- Families with one child can receive up to $4,328.
- Taxpayers without children can claim a maximum of $649.
The income threshold to qualify for EITC depends on filing status and the number of children. Married couples with three or more children must have an AGI below $68,675, while single filers with the same number of children should keep their AGI below $61,555. These thresholds aim to help those in need without extending credits to higher-income households.
EITC Income Limits
| Filing Status | Number of Children | Income Limit | Max EITC |
|---|---|---|---|
| Married (Joint) | 3+ | $68,675 | $8,046 |
| Single | 3+ | $61,555 | $8,046 |
| Married (Joint) | 2 | $59,187 | $7,152 |
| Single | 2 | $53,057 | $7,152 |
| Married (Joint) | 1 | $53,865 | $4,328 |
| Single | 1 | $48,015 | $4,328 |
| Married (Joint) | 0 | $24,210 | $649 |
| Single | 0 | $18,630 | $649 |
For low-income families, the increased EITC offers substantial assistance with necessary expenses, from housing to childcare, thereby improving their financial stability.
Tax Brackets
The IRS has also made inflation-related adjustments to income tax brackets, ensuring taxpayers aren’t penalized for nominal income increases caused by inflation. In 2025, families may benefit from expanded income thresholds that allow them to earn more before moving into higher tax brackets, potentially reducing their tax burden.
Long-term capital gains tax rates, which apply to assets held for over a year, have been similarly adjusted. This is particularly relevant for taxpayers planning asset sales, such as investments or real estate, as they may owe less tax on their profits due to higher income thresholds.
Capital Gains Tax Brackets
| Capital Gains Rate | Single Filer AGI Limit | Joint Filers AGI Limit |
|---|---|---|
| 0% | Up to $44,625 | Up to $89,250 |
| 15% | $44,626 – $492,300 | $89,251 – $553,850 |
| 20% | Over $492,300 | Over $553,850 |
These adjustments ensure families benefit from any potential gains without moving into higher tax rates simply because of inflationary changes.
Gift and Estate Tax
The IRS also raised the exemption limit on gift and estate taxes in 2025, allowing individuals to transfer more wealth without facing additional taxes. This change can help families engage in estate planning with less worry about tax implications, providing opportunities to preserve wealth across generations.
The tax updates for 2025 bring targeted relief to middle- and lower-income households by making inflation-sensitive adjustments to crucial tax credits, income brackets, and other financial considerations. For families struggling with the rising costs of living, these changes may offer meaningful financial support, especially through increases in the EITC and adjustments to tax brackets. As tax season approaches, understanding these changes will help families optimize their tax benefits.
FAQs
How much is the Child Tax Credit in 2025?
The Child Tax Credit is $2,000 per child, with $1,700 refundable.
Who qualifies for the EITC in 2025?
Low- and moderate-income families with an AGI under specific thresholds.
Are there new income tax brackets for 2025?
Yes, the IRS adjusted brackets to offset inflation effects.
What is the new EITC max for families?
Families with three or more kids can claim up to $8,046.
Has the gift tax exemption changed?
Yes, the IRS raised the gift and estate tax exemption for 2025.
