Tax Credits

The family, education, earned income, adoption, foreign tax and energy credits for 2025, including the changes made by the One Big Beautiful Bill Act. The SEE tests who qualifies, the 2025 amounts and phase-outs, which credits are refundable, and which energy credits have ended.

Deductions and Credits5 min read7 sections

Must-know for the exam

The 2025 child tax credit is $2,200 per child under 17; up to $1,700 is refundable, at 15% of earned income over $2,500 (IRC 24; P.L. 119-21).
The CTC phases out by $50 per $1,000 or part of MAGI over $400,000 MFJ ($200,000 others); a valid SSN is needed for the child and one spouse (IRC 24(b), (h)).
The $500 credit for other dependents covers qualifying relatives, children 17 and over and ITIN dependents (IRC 24(h)(4); 2025 Schedule 8812 instructions).
Dependent care credit for 2025: expenses up to $3,000 (one) or $6,000 (two or more), at 35% down to 20%; child under 13 (IRC 21; Pub. 503 (2025)).
AOTC: 100% of the first $2,000 and 25% of the next $2,000, 40% refundable, four years only; LLC is 20% of $10,000 per return (IRC 25A; Pub. 970 (2025)).
Both education credits phase out at MAGI $80,000-$90,000 single, $160,000-$180,000 MFJ; none for MFS (IRC 25A(d); Form 8863 instructions (2025)).
2025 EIC maximums: $649, $4,328, $7,152 and $8,046; disqualified investment income limit $11,950 (IRC 32; Rev. Proc. 2024-40 sec. 3.06).
2025 adoption credit is $17,280 per child, up to $5,000 refundable; special-needs adoptions get the full amount regardless of expenses (IRC 23; Rev. Proc. 2024-40 sec. 3.04).
Foreign tax credit without Form 1116 if all foreign income is passive and on payee statements and taxes are $300 or less ($600 MFJ) (IRC 904(j)).
P.L. 119-21 ended the new clean vehicle credit for vehicles acquired after September 30, 2025, and the 25C and 25D credits after 2025 (IRC 30D(h), 25C, 25D(h)).

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Traps that cost marks

Using age 18 or 19 (the dependency age) for the child tax credit.
Requiring both spouses to have SSNs.
Assuming a foster child cannot qualify for the child tax credit.
Using the child tax credit's under-17 rule.
Assuming payments to family members never qualify.
Using the temporary 2021 limits or the 2026 changes.
Treating the two credits' expense rules as identical.
Allowing a fifth year of the American opportunity credit.

Why it matters on the exam

Credits reduce tax dollar for dollar, and refundable credits can create a refund. That is why the SEE asks about them often and why paid preparers have due diligence duties for the EIC, CTC, AOTC and head of household status. Expect recall of 2025 amounts, eligibility scenarios and two or three computations per part.

Several credits changed for 2025 under the One Big Beautiful Bill Act: a $2,200 child tax credit with new SSN rules, a partly refundable adoption credit, and early end dates for the energy and clean vehicle credits.

Child tax credit and credit for other dependents

•Child: a qualifying child under 17 at the end of the year with a valid SSN. A child who turned 17 in November 2025 moves to the $500 ODC.
•Taxpayer SSN: beginning in 2025 the taxpayer needs a valid SSN; on a joint return only one spouse needs one (IRC 24(h)(7)).
•Phase-out: $50 for each $1,000 or part of $1,000 over $400,000 MFJ. Two children ($4,400) at MAGI $437,250: 38 x $50 = $1,900, leaving $2,500.
•ACTC: the smaller of $1,700 per child or 15% of earned income over $2,500. Two children and $12,500 earned: 15% x $10,000 = $1,500.

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Deductions and Credits