The recent signing of the One Big Beautiful Bill (OBBB) has just made having kids less expensive!
No, not really, having kids is very expensive. However, the OBBB did do a couple of things to blunt the financial impact of adding that bundle of joy to your family. While most know that OBBB made permanent the 2018 tax breaks, what some may have missed are the added benefits to parents of young children.
Child Tax Credit Increased
The child tax credit is a $2,000 tax credit for every qualifying child (dependent child under 17 years old.) Unlike a deduction, which merely reduces the amount of income on which you pay taxes, a credit is a direct reduction of the taxes you owe. Up to $1,700 of this tax credit is refundable, meaning that even if you didn’t owe taxes, you could receive up to $1,700 back as a tax refund.
OBBB increased the child tax credit to $2,200 per qualifying child and made it adjusted annually for inflation. In addition, the $500 credit for older children was made permanent. There is an income phaseout above which these tax credits begin to phase out. The current $200,000 for single taxpayers and $400,000 for those married filing jointly was made permanent. Without these changes, the child tax credit would have returned to $1,000.
Adoption Credit Made Refundable
Parents looking to adopt a child will find that adoption can be very expensive. To help, the adoption tax credit can reduce the financial impact by providing a tax credit of up to $17,280 for 2025. The OBBB made up to $5,000 of that refundable, meaning that even if they do not owe taxes, adoptive parents can receive up to $5,000 in a tax refund.
Trump Accounts Created
OBBB created “Trump Accounts”. Trump accounts are tax deferred accounts like IRAs. Children born from 2025 to 2028 are eligible for seed contribution of $1,000 from the federal government. Those born before 2025 and not yet 18 may set up an account but will not be eligible for the seed money. Starting July 4, 2026, Parents and others may also make non-deductible contributions of up to $5,000 annually. The funds can be accessed after 18 years old and will be subject to income taxes. Like IRAs, there will be a 10% penalty on early withdrawals.
The rule of 72 suggests that a 7% return could double your money every 10 years. That means that at 20 years old, that $1,000 could be $4,000 toward a car, tuition, or that trip to Europe. If your child has the discipline to wait until 60 years old, it could be $64,000. Of course, additional contributions while your child is young could dramatically increase the ending balance.
No Tax on Tips and No Tax on Overtime
It may seem strange to discuss no tax on tips or overtime in a message on tax savings for new parents, but remember, kids are expensive. If one parent must work overtime to cover the cost of summer sports tournaments, they will no longer have to pay taxes on that overtime work. This comes as a deduction of up to $12,500 for single taxpayers or $25,000 for those married filing jointly for qualified overtime.
If the other parent must pick up some hours at the local diner to cover ballet lessons, they will not have to pay taxes on their tips. This will come as a deduction of up to $25,000 for tips.
Both tax breaks will expire at the end of 2028 and begin to phase out when income exceeds $150,000 for single taxpayers and $300,000 for those married filing jointly.
Estate Tax and Gift Tax Exemptions Made Permanent and Indexed.
Once that child is full grown, and you are creating your estate plan, you will be glad that the OBBB made permanent the increased estate and lifetime gift tax exemption amounts of $15 million for single taxpayers and $30 million for those married filing jointly. In addition, the exemption will be indexed annually for inflation. This means you will be able to leave more of your money to your kids when you pass.
Adding children to your family is costly. A little bit of financial planning in advance of birth or adoption can ensure your finances are prepared to absorb the financial hit.
IRS Reveals New 2025 Family Tax Credit Amounts That Can Save You Money | Kiplinger
Individual Tax Provisions | One Big Beautiful Bill Act | Tax Credits
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