The recently signed tax legislation known as the “One, Big, Beautiful Bill” (OBBB) brings a number of changes to U.S. tax policy. While the bill includes wide-ranging provisions on healthcare, border security, and taxes, this overview focuses specifically on what parents and families can expect starting in 2025.
1. Child Tax Credit Increases — With Limitations
One of the more notable changes for families is an increase to the federal Child Tax Credit (CTC). Previously capped at $2,000 per qualifying child under age 17, the credit now increases to $2,200.
However, there are a few important caveats:
- The $200 increase only applies to the nonrefundable portion of the credit, meaning it won’t result in a refund beyond what is owed.
- The full credit is phased out for higher-income households. Married couples filing jointly with income over $400,000—and single filers earning over $200,000—will not be eligible for the full amount.
- A valid Social Security Number (SSN) is now required for the parent or guardian claiming the credit. This change makes many mixed-status families ineligible, particularly those without SSNs, potentially affecting millions of children who previously qualified.
Starting in 2026, the CTC will also be indexed for inflation, meaning the amount could increase automatically over time based on cost-of-living adjustments.
2. New "Trump Accounts" for Children
The OBBB introduces a new savings vehicle called the “Trump Account.” This account is intended to help parents save for a child’s future needs, including education, home ownership, or starting a business.
Key features of the Trump Account include:
- Annual after-tax contributions of up to $5,000 per child by parents, relatives, or others.
- Tax-deferred growth of contributions until the child turns 18.
- A $1,000 government-funded seed deposit for children born between 2025 and 2028.
- Automatic enrollment for eligible children who don’t already have an account.
The auto-enrollment provision may raise some concerns if the accounts go unused, similar to the many forgotten 401(k)s across the country. However, data shows that over half of U.S. parents do not currently open savings accounts for their children. The Trump Account could encourage more long-term saving for child-related goals.
3. Expanded Paid Family and Medical Leave Credit
The bill also makes permanent the employer-provided Paid Family and Medical Leave (PFML) credit, with changes designed to expand access. Here’s what’s new:
- Eligibility has been expanded to include employees who have worked at least six months (down from one year) and at least 20 hours per week.
- Employers can now calculate the credit based on either actual paid leave wages or the cost of PFML insurance premiums.
- State and local paid leave mandates now count toward eligibility for the federal credit.
Although the PFML credit is a business incentive, the aim is to increase the number of private-sector employees who can access paid family leave. Currently, only about 27% of workers in private industry have access to this benefit.
4. Additional Tax Updates for Parents
Other family-related tax provisions in the OBBB include:
- The federal adoption credit is now partially refundable, up to a maximum of $5,000, and will be adjusted annually for inflation.
- The personal and dependent exemptions, once worth $4,150 per person, have been permanently eliminated.
Before these exemptions were removed under the Tax Cuts and Jobs Act (TCJA), they were widely used, with nearly 293 million people claiming them. Their permanent elimination may impact the total tax savings for many families.
Summary
The One, Big, Beautiful Bill introduces a variety of tax-related updates, particularly affecting families with children. Key changes include a higher child tax credit, the creation of Trump Accounts to support long-term savings, and updates to paid family leave incentives for employers. Parents should review these updates carefully to understand how their tax situation might change in 2025 and beyond.
If you’re confused about the new tax laws, received a penalty notice from the IRS, or just need help filing your taxes, it’s best to work with a professional accounting firm like Morris and Associates. We can help you navigate the process and determine the best solution for your specific tax situation.
