Families Gain Long-Term Tax Relief Under One Big Beautiful Bill
July 24, 2025
By Haley Brockway, CPA
Tax Manager
Families have plenty to celebrate as the One Big Beautiful Bill (OBBB) introduces several favorable tax provisions designed to deliver tax savings for years to come.
One of the biggest wins? The child tax credit (CTC) is getting a permanent boost. Originally set to decrease after 2025, the CTC has been permanently increased to $2,200 per child beginning in 2025 and will be indexed annually for inflation. The increased refundable portion of the credit is also here to stay, set at $1,700 for 2025 and increasing each year with inflation. For families with dependents who don’t qualify for the CTC, the $500 dependent credit is now permanent as well.
The good news doesn’t stop there for working parents. For the first time in nearly 40 years, there’s a significant increase to the amount parents can set aside pre-tax to help cover the cost of childcare through Dependent Care Flexible Spending Accounts (FSAs). Beginning in 2026, the maximum contribution to a dependent care FSA will rise to $7,500, up from the long-standing limit of $5,000.
Also starting in 2026, the bill raises the maximum dependent care credit rate to 50% for the lowest income taxpayers, up from the previous maximum rate of 35%, while maintaining the credit limits at $3,000 of expenses for one child and $6,000 for two or more children. The rate gradually decreases as income rises, but the minimum credit rate remains at 20%. Plus, the phaseout thresholds have been significantly expanded, allowing more middle-income families to qualify for higher credits.
The OBBB is also bringing promising changes when it comes to investing in your child’s future. The well-known 529 plans are becoming even more favorable as the annual tax-free withdrawal limit for K-12 qualified education expenses will be increased from $10,000 to $20,000 starting in 2026. The definition of qualified K-12 expenses has also been expanded to offer families more flexibility in how they use these funds.
The bill further supports non-traditional post-secondary educational paths by broadening the definition of qualified higher education expenses to include costs related to trade schools, vocational training and credentialing programs.
In addition, the OBBB introduces a new way to invest in your child’s future with the creation of “Trump Accounts.” These accounts are a form of individual retirement accounts designed for children under the age of 18 to be used for future expenses related to education, small business investments and the purchase of a first home.
One highlight of these plans is that all American children born from 2025 to 2028 will receive a one-time government funded deposit of $1,000 into their Trump Account. Starting in 2026, parents or others can contribute up to a maximum of $5,000 annually, indexed for inflation, including tax-free employer contributions of up to $2,500 annually. Look for guidance from the Treasury on how to establish these accounts and ensure funding to be provided by July 2026.
These changes represent a meaningful step forward for American families. With so many updates, it can be difficult to navigate them all on your own. To ensure you’re making the most of these opportunities and maximizing your tax savings, now is a great time to connect with your tax advisor. We’re here to help you understand how these changes may impact you and to develop a strategy that fits your family.
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