Working Families Tax Cuts Strengthen the Child Tax Credit and Adoption Credit

Raising children has never been cheap. From childcare to adoption to paid leave, many families face significant costs during life’s most important moments. The “Working Families Tax Cuts” respond directly to these challenges by lowering the cost of child and dependent care and providing meaningful tax relief to parents.

At the center of these reforms are two major improvements that strengthen financial support for families: a permanent expansion of the Child Tax Credit and new help for families pursuing adoption.

The first reform is a stronger and more stable Child Tax Credit. Under the “Working Families Tax Cuts,” the Child Tax Credit is set permanently at $2,200 per child and indexed for inflation going forward. Indexing ensures that the value of the credit does not erode over time as prices rise.

This policy provides certainty to families planning their finances and helps ensure that the tax code continues to recognize the real cost of raising children. By making the credit permanent, partially refundable, and indexed for inflation, the tax code delivers long-term support to parents across the country.

The legislation also takes an important step to make adoption more affordable. For 2025, the Adoption Tax Credit totals $17,280 per qualifying child, and the credit is indexed for inflation going forward.

Families can claim this credit for a wide range of qualified adoption expenses, including:

• Adoption fees

• Attorney fees

• Court costs

• Travel expenses (including meals and lodging) while away from home

• Other expenses directly related to, or for the principal purpose of, the legal adoption

• Expenses paid before identifying an eligible child, such as home study fees

  
  

These expenses can add up quickly. Adoption often involves thousands of dollars in legal, administrative, and travel costs before a child ever comes home.

The “Working Families Tax Cuts” also strengthen the credit by making part of it refundable. For the first time, up to $5,000 of the Adoption Tax Credit will be refundable, and this refundable amount is also indexed for inflation going forward. Previously, families could only benefit from the credit to the extent they owed federal income tax. If a family’s tax bill was smaller than the credit, they could not receive the remaining value.

Making a portion of the credit refundable ensures that more families can benefit from the support, including those with lower tax liability. This change provides direct financial assistance to families who are opening their homes to a child and helps remove one of the financial barriers that can stand in the way of adoption.

Taken together, these reforms create a consistent framework for family tax relief. Both the Child Tax Credit and the Adoption Tax Credit are now permanent, partially refundable, and indexed for inflation, ensuring that the support they provide will remain meaningful over time.

While the Child Tax Credit and adoption reforms are the centerpiece of the package, the “Working Families Tax Cuts” include several additional improvements designed to support families and lower the cost of care for working parents.

The Child and Dependent Care Credit is strengthened by increasing the maximum credit rate from 35 percent to 50 percent. The income threshold for the full credit is also raised, helping middle-class families receive more meaningful support. For many households, these changes will offset childcare costs by roughly $1,000 on average.

Families who rely on employer-sponsored dependent care accounts will also see expanded flexibility. The exclusion for Dependent Care Assistance Flexible Spending Accounts increases from $5,000 to $7,500 per year, allowing families to set aside more pre-tax income to cover childcare expenses.

The legislation also modernizes the Paid Family and Medical Leave Tax Credit. The credit is made permanent and expanded nationwide, giving businesses in all 50 states the ability to provide paid leave with tax support. The eligibility rules are also updated by reducing the minimum employment requirement from one year to six months, ensuring that more workers qualify for leave when major life events occur.

Finally, the reforms expand incentives for employer-provided childcare. The maximum credit available to employers rises to $500,000 and to $600,000 for small businesses. The law also allows small businesses to pool resources and work with third-party providers to offer childcare options to their employees, creating more local solutions for working parents.

Together, these reforms recognize a simple reality: raising children is one of the most important investments families make. By strengthening the Child Tax Credit, improving the Adoption Tax Credit, and expanding tax relief for childcare and paid leave, the “Working Families Tax Cuts” deliver meaningful support for American families.