The 2025 Tax Debate: The Child Tax Credit in TCJA
In 2025, lawmakers have a window for significant tax reform as key provisions from the Tax Cuts and Jobs Act (TCJA) are set to expire. TCJA, passed by Congress and signed into law by former President Donald Trump in December 2017, changes two major categories of taxes levied on individuals: income taxes and estate taxes. Most of TCJA’s changes to the individual tax code are temporary and scheduled to expire on December 31, 2025.
When passed, TCJA’s changes to individual taxes were projected to reduce revenues (and increase deficits) by $862 billion from FY2018-2027. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimate that making the individual provisions permanent would increase deficits by an additional $2.7 trillion from FY2025-2034.[1]
The Child Tax Credit
Revenue Effects at Enactment, Fiscal Years 2018-2027 (JCT): -$544 billion
Revenue Effects if Made Permanent, Fiscal Years 2025-2034 (CBO): -$735 billion
Policy Change
The Child Tax Credit (CTC) can be claimed on a family’s annual income tax return to help offset the cost of raising children. TCJA made several key changes to the CTC, most notably temporarily doubling the maximum CTC from $1,000 to $2,000 per child for children under 17.
Table 4: The Child Tax Credit Under Permanent Law Versus the Tax Cuts and Jobs Act
| Permanent Law (2017, 2026-) |
Tax Cuts and Jobs Act
(2018-2025) |
|
| Expiration | – | End of tax year 2025 |
| Maximum Credit | $1,000 per child | $2,000 per child |
| Phase-in Rate and Threshold | 15% of earnings over $3,000 | 15% of earning over $2,500 |
| Refundability | If credit exceeds tax liability, difference is issued as a refund | Same as permanent law, but with refunds capped at $1,400 per child (cap adjusted for inflation each year after 2018) |
| Phaseout Rate and Threshold[2] | 5% starting at income of $75,000 (single or head of household) or $110,000 (married filing jointly) | 5% starting at income of $200,000 (single or head of household) or $400,000 (married filing jointly) |
| Total Annual Cost[3] (Approximate) | $45 billion | $120 billion |
Source: Bipartisan Policy Center
TCJA also modified the income thresholds at which the CTC begins to phase out, in part to offset the effects of the elimination of dependent exemptions included in the bill. Previously, the phase-out began at $75,000 for single parents and $110,000 for married parents. TCJA increased these thresholds to $200,000 for single parents and $400,000 for married parents.
TCJA also made changes to the refundable portion of the CTC. If the credit amount exceeds taxes owed, TCJA made taxpayers eligible to receive up to $1,400 of the balance as a refund (adjusted for inflation after 2018). Prior to TCJA, filers could receive the full credit on a refundable basis, but the credit still phased in at a rate of 15% of earnings over $3,000. TCJA introduced a lower earnings threshold for the refundable CTC, capping it at 15% of earnings above $2,500.
Additionally, TCJA established the Credit for Other Dependents, a $500 nonrefundable credit for dependents who are ineligible for the $2,000 credit, including 17- and 18-year-old children living at home, 19- to 24-year-old children who are full-time students, and elderly parents who are considered dependents.
Context
Republicans justified the increase in the CTC by arguing in a Congressional report “it is important to provide an increased tax benefit for families raising children, as well as to ensure that all members of a household are accounted for in determining families’ ability to pay income tax.” Lawmakers also believed it was important to increase the CTC given TCJA’s corresponding (and temporary) repeal of dependent exemptions, which would have raised taxes on parents absent the CTC increase. Democrats have consistently supported efforts to expand the CTC, creating an opportunity for strong bipartisan consensus on this issue.
Impact
An additional 19 million taxpayers claimed the CTC after TCJA’s enactment., most of whom reported making between $30,000 and $500,000 in 2018.
TCJA’s changes to the CTC were projected to cost about $545 billion upon enactment (FY2018-2027). Extending TCJA’s CTC changes is projected to cost about $735 billion from fiscal years 2025 through 2034, though additional expansions supported by many Democrats and some Republicans would cost more.
Conclusion
TCJA stands as the most substantial overhaul of the individual tax code since the Tax Reform Act of 1986. With the impending expiration of several TCJA individual tax provisions, members of Congress should carefully assess the impact of extending, ending, or modifying them. Understanding the implications of these provisions and their potential long-term effects on the economy and government finances will be critical for shaping future tax policies that balance revenue needs, economic growth, and fairness for all taxpayers.
[1] This deficit estimate does not include the cost of extending the 20% deduction for small business income, which JCT estimated in 2017 would reduce revenues (increase deficits) by $415 billion from FY2018-2027 and which CBO estimates in 2024 would reduce revenues (increase deficits) by $684 billion from FY2025-2034. Even though the small business deduction is on the individual side of the tax code, since most small business owners or partners pay taxes on business income through their individual returns, we consider the small business deduction in a separate analysis on how TCJA affected business taxes.
[2] For a married couple filing jointly with two children under age 17, the CTC is fully phased out at $150,000 under permanent law and $480,000 under TCJA.
[3] Cost estimates come from Joint Committee on Taxation for the most recent year in which relevant law applied: permanent law cost is from 2017 and TCJA cost is from 2022.