Updated for tax year 2025.
There’s no doubting it — having kids is expensive. Between paying for diapers, daycare, and many other baby supplies, new parents can quickly find themselves overwhelmed financially. Fortunately, several tax advantages are available to parents to alleviate some financial responsibility.
Let’s go over seven valuable tax breaks for parents, including recent changes brought about by the One Big Beautiful Bill (OBBB) passed in July 2025.
1. Claim the Child Tax Credit.
The Child Tax Credit (CTC) is a tax credit for parents of dependent children designed to help offset the cost of raising kids.
As a parent, you can take advantage of the Child Tax Credit on your tax return if you have a child under the age of 17 whom you claim as a dependent. The OBBB made some changes to the CTC, so we’ll go over the current tax law below.
For 2025, the CTC is worth up to $2,200 per qualifying child (up from $2,000 in 2024). If your adjusted gross income is over $200,00 for single parents or over $400,000 for married parents filing jointly, the credit value is reduced by $50 for each $1,000 of income over those thresholds until it is eliminated entirely.
However, the unique part of the CTC is that it is partially refundable. That means if the credit value exceeds the amount of taxes you owe, you can receive up to $1,400 of the remaining balance as a tax refund for tax year 2025. This refundable portion of the credit is known as the Additional Child Tax Credit (ACTC).
Tax Tip: By law, if you claim the ACTC, the earliest the IRS can release your tax refund is mid-February.
2. Take advantage of the Child and Dependent Care Credit.
While the Child and Dependent Care Credit sounds very similar to the Child Tax Credit, they are two different tax benefits available to parents. The Child and Dependent Care Credit is specifically designed to help reduce the burden of childcare costs incurred while you are working or looking for work.
For the 2025 tax year, the credit is worth 20% to 35% of qualified expenses, depending on your income. The maximum amount of qualified expenses you can claim is $3,000 per qualifying dependent or $6,000 for two or more qualifying dependents.
Beginning in the 2026 tax year, the OBBB raises the maximum percentage of allowable expenses to 50%, while keeping the same maximum expense limits. This means many families (particularly those with lower and middle incomes) will see larger credits starting with the income tax return they file in 2027.
3. Utilize the Adoption Tax Credit.
If you adopted a child and it was finalized in 2025, you may be eligible for the federal adoption tax credit. For 2025, this benefit can credit you up to $17,280 per child.
This is a one-time credit per adopted child. Eligibility for the adoption tax credit depends on a few circumstances. First, you must have adopted a child (other than a stepchild) in the 2025 tax year to claim the credit. The child must be under the age of 18 or must be either physically or mentally unable to take care of themselves.
Second, your income must fall within the income limits for the credit. The 2025 Adoption Credit income limits are:
Full credit: Families with a modified adjusted gross income (MAGI) of $259,190 or less can claim the full amount.
Partial credit: Families with incomes between $259,191and $299,190 can claim a partial credit.
No credit: Any family whose income is above $299,190 cannot claim the credit.
Prior to 2025, the Adoption Credit was nonrefundable. However, the OBBB made part of the credit refundable. Here’s what changed:
The refundable amount will be adjusted for inflation each year, just like the full credit amount.
Up to $5,000 of the Adoption Credit is refundable in 2025 and future tax years. This means if your tax liability is less than the credit, you could get a refund for the difference (up to $5,000).
4. Claim the Earned Income Tax Credit.
The Earned Income Tax Credit (EITC) can be a game-changer for lower-income parents. It is a refundable tax credit that ranges from $649 to $8,046 for tax year 2025. The amount you qualify to receive is dependent upon your tax filing status, how many children you have, and your income level.
For more information about the income limits and how much credit you could expect to claim, check out our Earned Income Tax Credit Calculator.
Tax Tip: By law, if you claim the EITC, the earliest the IRS can release your tax refund is mid-February.
5. Make the most of a 529 plan.
It’s never too early or too late to start saving for your child’s education. Fortunately, 529 plans offer tax and financial aid benefits when putting money away for your child’s college expenses.
There are two types of 529 plans: college savings plans and prepaid tuition plans. College savings plans work like a Roth 401(k) or Roth IRA by investing your after-tax contributions in mutual funds or similar investments. Prepaid tuition plans let you pre-pay all or part of in-state public college education costs. They may also be converted for use at private and out-of-state colleges.
Like a Roth IRA, contributions to a 529 plan are made post-tax and are not deductible from federal income taxes. Funds in a 529 plan grow federal tax-free and will not be taxed when the money is withdrawn for qualified education expenses. Some states also offer state income tax incentives to parents, such as state income tax deductions and tax credits for contributions to the state’s 529 plan.
6. Consider a dependent care flexible spending account.
Depending on the benefits offered through your employer, you may be eligible to participate in a dependent care flexible spending plan.
Dependent care FSA programs work much like a regular healthcare FSA in that you can take pre-tax dollars out of your paycheck and put them into the account. These funds can be used to pay for qualifying dependent care expenses, such as daycare.
For 2025, the maximum amount you can contribute to a dependent care FSA remains at $5,000 ($2,500 for those married filing separately). In 2026, the max contribution will increase to $7,500 ($3,750 for married filing separately) due to a provision in the OBBB.
7. Adjust your tax withholding.
Lastly, when you have a child, you may want to adjust your tax withholding on Form W-4. By adjusting your withholding, you can ensure the appropriate amount of taxes is withheld from your paycheck so you (ideally) owe less when you file your tax return.
To adjust your withholding, submit a new Form W-4 to your employer. The TaxAct® Withholding Calculator1 can help you determine the right amount of withholding for your new tax situation.
The bottom line
Raising children can be financially demanding, but there are numerous tax benefits designed to lighten the load. From the Child Tax Credit and Earned Income Tax Credit to savings tools like 529 plans and dependent care FSAs, these programs can provide meaningful relief for parents. As you prepare for the coming tax year, explore these options to help make the most of your tax savings. Make it easy on yourself by filing with us at TaxAct — we can help you determine which child-related tax credits and deductions you may qualify for.
1Refund Booster may not work for everyone or in all circumstances and by itself doesn’t constitute legal or tax advice. Your personal tax situation may vary.
This article is for informational purposes only and not legal or financial advice.
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