One of the primary goals of the Trump Administration and Congress as they drafted the One Big Beautiful Bill Act (OBBBA) last year was to find ways to support families through the tax code. While the true cost of raising a child is subject to considerable debate, it is clear that the overall cost of being a parent has risen over the last few years. Congress delivered several big wins to taxpaying families when it passed OBBBA last year, even spurring lawmakers to change the measure’s name to “Working Families Tax Cuts” (WFTC).
A key provision in WFTC for families was permanence of the lowered individual tax rates set in the 2017 Tax Cuts and Jobs Act (TCJA), which stopped one of the largest tax increases in American history. However, there were many other pro-family provisions in the bill. WFTC increased the standard deduction from $30,000 to $31,500 for a married couple who files jointly, and significantly expanded both the size and scope of 529 education savings accounts. It also enhanced a number of smaller pro-family provisions, including the Adoption Tax Credit, Child and Dependent Tax Credit, Dependent Care Assistance Programs, Employer-Provided Child Care Credit, and the Employer Credit for Paid Family and Medical Leave.
However, the most important pro-family provision included in the WFTC was the extension and expansion of the Child Tax Credit (CTC). Originally established in 1997, the CTC has evolved from a $500 nonrefundable tax credit into a large and partially refundable child tax benefit designed to reduce family poverty rates. The credit was doubled by TCJA in 2017, and expanded again by WFTC from $2,000 to $2,200 per child under the age of 17. WFTC also took the important step of indexing the credit to inflation to prevent its value from eroding in the future.
The CTC has the broadest impact for the most families. Estimates from the Federal Reserve Bank of St. Louis show that about 70% of women with young children have a job, meaning that working moms will benefit significantly from the expanded CTC. Yet, stay-at-home parents will also benefit from the additional disposable income the CTC provides, helping them cover critical expenses in the beginning years of a child’s life.
WFTC’s expansion of the CTC is a win for both families and taxpayers. The CTC is more efficient for the government to administer than other programs intended to help families. Meanwhile, WFTC’s technical changes to the CTC, such as the requirement for recipients to have a Social Security Number (SSN) instead of an Individual Taxpayer Identification Number (ITIN), more closely align the credit with requirements of other government benefit programs. A carefully crafted CTC that provides meaningful relief to the families that need it the most, while also demonstrating fiscal restraint, was a commendable addition to WFTC.