As we approach 2025, the fate of the child tax credit (CTC) is in question, with millions of families across the United States facing potential changes to a key financial benefit. The expansion of the CTC under the Tax Cuts and Jobs Act (TCJA) of 2017 provided much-needed relief to many families, increasing the maximum benefit from $1,000 to $2,000 per child under 17. However, without intervention from Congress, this increased benefit is set to expire at the end of 2025, potentially leaving parents with smaller refunds when filing taxes in 2027.
The TCJA’s Impact on the Child Tax Credit
The TCJA temporarily raised the CTC’s maximum benefit, allowing families to claim up to $2,000 per eligible child. This change also expanded eligibility, making the credit available to more families, especially those in higher income brackets. However, one of the key modifications was the reduction in the refundable portion of the CTC, which disproportionately affected lower-income families.
While higher-income families generally benefitted the most from the expansion, the reduction in the refundable portion meant that families without tax liabilities received less financial relief. According to a Tax Policy Center analysis, an estimated 17 million children in lower-income households would miss out on the full benefit of the CTC in 2025 if the expansion ends as planned.
Congressional Action on the Child Tax Credit
In 2024, there was bipartisan support for extending or expanding the child tax credit. House lawmakers passed a package that included an expansion of the CTC, aiming to increase access and retroactively boost the refundable portion for the 2023 tax year. This proposed expansion would have provided immediate relief through refund checks for eligible families.
However, Senate Republicans blocked the legislation, citing concerns over the potential fiscal impact and the growing federal budget deficit. Despite these setbacks, there is still some hope that lawmakers will reach a compromise in the future. The child tax credit has garnered widespread support from both political parties, but with competing fiscal priorities and an ever-growing budget deficit, it remains uncertain whether the expanded credit will be extended past 2025.
The Financial Impact of the Expiration
Without congressional action, the child tax credit will revert to its pre-TCJA levels at the end of 2025, significantly reducing the amount families can claim per child. The expiration of the increased credit would not only affect the maximum amount but also the refundable portion, which is especially important for lower-income families who rely on it for financial relief. This reduction could have a substantial impact on family budgets, especially as inflation and cost-of-living pressures continue to strain household finances.
Bipartisan Support Amid Fiscal Challenges
Despite concerns about the federal budget deficit, there is growing bipartisan support for extending or modifying the CTC. Both Republicans and Democrats have recognized the importance of the child tax credit in supporting working families. However, with a fiscal year 2025 deficit already ballooning to $710.9 billion, nearly 40% higher than the previous year, lawmakers face tough decisions about how to balance tax cuts with fiscal responsibility.
Given the current budgetary challenges, it is unclear how the child tax credit will evolve. Will Congress extend the current level of benefits, or will they design a more targeted approach that focuses on lower-income families? With competing priorities and a growing deficit, the debate over the child tax credit will continue to unfold as 2025 approaches.
Looking Ahead
For families who rely on the child tax credit, 2025 represents a pivotal year. While the TCJA expansion was a welcome relief for many, the expiration of these provisions will likely create significant financial challenges for families unless Congress acts. The uncertainty surrounding the future of the CTC underscores the broader fiscal challenges facing the nation, and how lawmakers choose to address them will have lasting implications for American families and the broader economy.
As we go through 2025, it’s clear that the child tax credit will be one of the most closely watched tax issues. The outcome of the debate will impact millions of families and could shape the direction of future tax policy. For now, families can only wait and watch as Congress decides whether to extend the expanded CTC or allow it to return to its previous form.
