You may have heard of the Trump tax bill that was recently signed. This key piece of legislation, so-called “One, Big, Beautiful Bill” (OBBB), impacts millions of Americans through its provisions on health, border security, and taxes.
But what you may not know is how the Trump megabill is expected to affect parents. For instance, some well-known federal tax breaks, like the federal child tax credit, will be boosted. Others, including the personal and dependent exemption, are disappearing forever.
1. Child Tax Credit in ‘Big Beautiful Bill’
Under the OBBB, the federal child tax credit (CTC) has increased. Prior law allowed a credit on taxes up to $2,000 per qualifying child under the age of 17. The new law allows up to $2,200.- The $200 increase only applies to the nonrefundable portion of the tax credit, meaning that your taxable income factors in. Married filing joint couples with $400,000 or more (single filers $200,000 or more) will not be able to claim the full credit.
- A Social Security Number (SSN) is required for parents or guardians claiming the tax break. Before the OBBB, eligible families with children could claim the child tax credit regardless of parents’ immigration status.
2. Trump Account for Kids and Newborns
Trump’s megabill also introduces a new type of savings account. The “Trump Account” is designed to save annually for a child’s future educational, homeownership, and entrepreneurial needs.
- Allows parents, relatives, and others to contribute after-tax dollars (up to $5,000 per year) in a child’s name.
- Permits savings to grow tax-deferred until the child reaches 18.
- Gives children born between 2025 and 2028 seed money of $1,000 in each account.
- Auto-enrolls any eligible child who does not have a Trump account.
Since the seed money would likely come from taxpayer dollars, the auto-enrollment feature could lead to millions in tax dollars sitting idle.
However, in a poll conducted several years ago, CNBC reported that 53 percent of parents don’t open any type of savings accounts for their children.
3. ‘Big Beautiful Bill’ Changes for Parents
The Trump tax bill also made permanent the employer-provided paid family and medical leave (PFML) credit. Here’s a quick overview of what that means:- Before, businesses could only take the PFML tax credit for employees who had worked at least one year for an employer. Now, employees who have worked at least six months and for at least 20 hours a week may qualify.
- Employers can continue to calculate the credit based on wages paid or, under the new law, on PFML insurance policy premiums.
- State or locally mandated paid leave now counts towards satisfying the eligibility requirements for the credit.
Only about 27 percent of private industry employees have access to paid family leave through their employer, according to a recent report by Congress.gov. The expanded PFML tax credit could help more families spend time with their children or support their household during medical leave.
- Making the federal adoption credit partially refundable, with a $5,000 maximum amount. The credit will also become inflation-adjusted.
- Permanently removing the personal and dependent exemption, which was worth $4,150 (indexed for inflation).
What’s Still to Come?
Although the OBBB has been signed into law, talks continue on Capitol Hill regarding childcare. This may lead to future changes for parents.For instance, Sens. Katie Britt (R-Ala.) and Tim Kaine (D-Va.) are leading a bipartisan effort titled the “Child Care Availability and Affordability Act” to address current child care cost challenges through tax code adjustments, like increasing the size and refundability of the child and dependent care tax credit (CDCTC).
While the United States continues to experience a shortage of affordable, accessible, and high-quality child care options, future legislative efforts may greatly impact how parents and guardians care for their children. Stay tuned.
