How new tax changes for 2025 could affect federal tax liabilities for families

New changes from the Internal Revenue Service may affect federal tax liabilities for families in 2025.

For example, in its announcement Tuesday, the agency said it raised the maximum amount of the earned income tax credit, or EITC, and increased the income thresholds to qualify. It left the maximum refundable portion of the child tax credit unchanged.

The provisions are part of a bigger package of IRS inflation-related adjustments for 2025, which boosted figures for the federal income tax brackets, long-term capital gains tax brackets and the estate and gift tax exemption, among others.

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The refundable portion of the child tax credit — a tax break parents can take for qualifying children — will be $1,700 for 2025, which is unchanged from 2024. That figure represents how much families may claim even with zero tax balance on their tax returns.

The maximum child tax credit of $2,000 per child under 17 is available to parents with up to $400,000 in modified adjusted gross income if they are married and filing jointly, or under $200,000 if they are single. Those figures are also unchanged from 2024.

Notably, the terms of the current child tax credit are set to expire at the end of tax year 2025. At that time, the child tax credit is scheduled to drop to a maximum $1,000 per child.

However, lawmakers on both sides of the aisle have touted proposals to make the credit more generous.

The new changes for 2025 are standard adjustments for inflation so taxpayers don’t face higher tax liabilities, according to Alex Durante, economist at the Tax Foundation. The terms still reflect the Tax Cuts and Jobs Act of 2017.

“But the year following, 2026, families should be expecting to see higher tax liabilities unless Congress votes to extend these tax provisions that were implemented in 2017,” Durante said.

A tax credit for low- to middle-income individuals and families — the earned income tax credit, or EITC — will have higher maximum amounts in 2025.

The earned income tax credit helps qualifying individuals and families reduce the amount of tax they owe, while also potentially providing a refund, according to the IRS.

In 2025, the maximum EITC amount will be $8,046 for qualifying taxpayers with three or more eligible children. That is up from $7,830 for tax year 2024.

The maximum amount available for qualifying taxpayers with two eligible children will be $7,152, up from $6,960 in 2024; one qualifying child, $4,328, compared with $4,213 in 2024; and no qualifying children, $649, up from $632 in 2024.

To qualify for the tax credit, individuals and families must be under certain thresholds for adjusted gross income — defined as total income excluding any eligible deductions.

In 2025, the maximum AGI to qualify for the EITC for married couples with three or more children will be $68,675, up from $66,819 in 2024; and for single, head of household and widowed filers with three or more children it will be $61,555, adjusted from $59,899 in 2024. The EITC is also subject to phaseout thresholds.

Taxpayers are also limited to how much investment income they can have in order to qualify for the earned income tax credit. In 2025, that threshold will go to $11,950, up from $11,600 in 2024. If investment income is above $11,950 in 2025, taxpayers will not qualify for the credit.

Other changes announced by the IRS may also affect families.

The maximum adoption credit for a child, including those with special needs, will apply to qualified expenses of up to $17,280 in 2025, up from $16,810 in 2024.

The annual exclusion for gifts will go up to $19,000, up from $18,000 in 2024. If taxpayers give $19,000 to each of their children in 2025, the annual exclusion will apply to each gift.