How changes to the child tax credit and other policies will impact parents

Parents looking for tax breaks in the 2025 tax year will find many options available to them, while undocumented and mixed-status families are at risk of losing certain federal tax benefits.

As President Donald Trump’s administration seeks to curb immigration, it’s also going after benefits that have historically been available to immigrant families.

Last year’s passage of the "One Big Beautiful Bill," included tax provisions that permanently increased the federal child tax credit from $2,000 to $2,200 per child under age 17, with annual adjustments for inflation starting in 2026. The credit phases out for single filers with a modified adjusted gross income of $200,000, or $400,000 for those married filing jointly.

But undocumented individuals or mixed status families may no longer be able to claim the credit, due to changes in the filing requirements.

That’s because the law now requires a parent, or spouse if filing jointly, to have a Social Security number, as well as the qualifying child. The change could impact around 176,000 children, who are U.S. citizens with undocumented parents, according to data from the Migration Policy Institute.

Before the bill passed last year, taxpayers could file with a taxpayer identification number, or TIN, which is commonly used among the immigrant community and for those without a Social Security number.

If a parent has little to no income tax liability, they could qualify for the additional child tax credit that provides up to $1,700 per qualifying child. The additional child tax credit allows low-income families to receive a cash payment, compared to the child tax credit that reduces a family’s tax liability.

In order to receive the additional credit, taxpayers are required to have earned income of at least $2,500.

This could impact veteran families, particularly those who are transitioning into the civilian workforce and may not yet have an income, according to the Center on Budget and Policy Priorities. The center estimates 21,000 veteran families in Illinois could be affected by the income threshold.

Veteran and immigrant families with at least one child under 12 may still be eligible for the Illinois child tax credit, which is 40% of a taxpayer’s state earned income tax credit, for tax year 2025. The benefit would be $300 to $600 per family, double the amount available last year.

Dependent care credits

There’s also a federal credit for other dependents, available to families with dependents who don’t meet the criteria to claim the child tax credit or additional child tax credit.

Filers can claim the $500 credit for a dependent child over age 16 or another dependent relative. The credit was available under the 2017 Tax Cuts and Jobs Act and was made permanent with the passage of the new tax and spending bill, with the same income-based phaseouts as the child tax credit.

Another valuable tax credit for families is the child and dependent care credit, which covers a percentage of child care expenses for children under 13 or dependents who can’t care for themselves.

Trump’s so-called One Big Beautiful Bill Act allows taxpayers to claim up to 50% of eligible expenses, starting this year. But the amount of expenses used to calculate the credit remains the same at $3,000 for one person, or $6,000 for two or more people, according to H&R Block.

The credit also phases down at higher income levels compared to previous years.

The 2025 federal tax bill expanded the annual contribution limit on dependent care accounts as well. Administered through certain employers, dependent care accounts — also known as flexible spending accounts — can now receive pretax contributions of up to $7,500 (up from $5,000) to be used for work-related child care expenses, including summer day camp.

Adoption tax credit

Adopting a child can be expensive, but some parents will see a significant tax relief to help offset some of the costs. Parents can claim the credit if the child is under age 18, or physically or mentally incapable of self-care.

For 2025, the maximum credit for qualified adoption expenses increases to $17,820 per child, up from $16,810 in 2024.

But one significant change started in 2025: Taxpayers who adopt can receive a refundable credit of up to $5,000. Prior to the bill’s passing, the federal credit was nonrefundable, so it could reduce the taxes owed to zero, but it couldn’t provide a tax refund.

Income limits were also adjusted under the massive bill. For the 2025 tax year, the full credit is available to filers with a modified adjusted gross income of up to $259,190. The credit phases out and becomes unavailable to those whose MAGI equals or exceeds $299,190.

Child savings accounts

Also new this year: Trump Accounts.

For American citizens who have a baby between Jan. 1, 2025, and Dec. 31, 2028, the federal government will contribute $1,000 into a 530A account, also known as a Trump Account, on the child’s behalf. The account is similar to an individual retirement account and is expected to be available starting July.

Families can make annual after-tax contributions of up to $5,000. Employers and charitable organizations may also make contributions into the child’s account.

From ages 18 to 30, the child can withdraw the funds tax-free as long as it’s used for qualifying expenses such as higher education, job training, a first-time home purchase, starting a small business or certain workforce expenses. After age 30, the money is taxed as ordinary income.

Parents can fill out the new Form 4547 or elect to wait for an online portal that is expected to open in mid-2026.

Amanda Paton, partner and owner of Deerfield-based Clover CPAs and Consultants, said Trump Accounts are “not this overwhelming advantage, but it is something.”

She said the help is more limited given that Trump’s bill also cut funding for Medicaid and the Supplemental Nutrition Assistance Program.

Meanwhile, the bill expanded how 529 plans can be used. The tax-advantaged accounts are an option for families who want to save for their child’s educational expenses.

The bill expanded qualifying expenses for K-12 costs to include tutoring, standardized test fees, books and more. And as of Jan. 1, parents can withdraw $20,000 per year to pay for K-12 expenses, up from $10,000.