Last Updated 11 months ago

You may hear a lot of news about how the Child Tax Credit increased to $2,200 per child in the new law passed on July 4th, 2025. This headline is misleading because the refundable portion that many are used to is staying the same. However, that is a big win! Many don’t realize that while it has been increasing year after year, it was about to sunset back down to a refundable portion of $1,000 per child.

See, the old 2017 TCJA changed the refundable portion from $1,000 to $1,400 per child. Additionally, it adjusted for inflation year after year. By 2024, the refundable portion was $1,700 per child, almost double the original $1,000 refund. 

At the end of 2025, though, this was set to return to the original $1,000.This new law makes the adjustment permanent and increases it yearly for cost-of-living adjustments (COLA).

Some of this may sound like total gibberish, so let’s go back to basics and go over soup to nuts on the child tax credit, including the new rules and how they will apply to you.

For ease, we will do this in a good old Q&A format with my helper and client, Ezri. Ezri is the father of 4 beautiful kids here in the holy land and is curious about how the Child Tax Credit works and how these changes affect him.

Ezri: What is the Child Tax Credit?

Answer: The Child Tax Credit is a dollar-for-dollar reduction of your U.S. income tax for each qualifying child under age 17. Under the new law, the base credit is $2,200 per child, up from $2,000, and it will have a cost-of-living adjustment (COLA) increase starting in 2026.

Ezri: What does it mean that it is refundable? 

Answer: Refundable means the IRS will send you cash even if you owe no U.S. tax. The refundable slice will still be ~$1,700 per child for 2025 (with some slight COLA differences) and will increase year over year.

Ezri: What does refundable versus nonrefundable even mean? Can you give me an example?

Answer: Think of the credit in two layers. The first layer knocks out your U.S. tax bill up to $2,200 per child. The second layer is a refund of up to $1,700 per child if any credit remains after your tax goes to zero. Imagine your U.S. tax is $800, and you have one qualifying child. The first layer wipes out the $800. You still have $1,400 of a potential refund. If your earned income and other tests qualify, you get a $1,400 check from the Treasury.

Ezri: Who does it apply to?

Answer: Any U.S. citizen or resident who files a tax return and has a qualifying child under age 17 with a Social Security number issued on or before the due date of the return can claim the credit.

Ezri: What if my tax return is extended?

Answer: That helps. You need the Social Security number to be issued before the extended due date of your tax return.

Ezri: Is the refund issued monthly like child bituach leumi payments, or is it reported on my tax return at the end of each year?

Answer: It is claimed on your annual Form 1040. Congress did not revive the monthly advance payments that briefly existed in 2021, thankfully, since those were a mess for people living in Israel.

Ezri: Is there anything changing about the refund in this new law that passed? 

Answer: Yes. The credit now jumps to $2,200 and will adjust for inflation after 2025. The refundable cap of $1,700 also inflates starting with 2025 returns. And only one spouse needs to list a Social Security number on a joint return instead of both.

Ezri: You keep saying ~$1,700, but when I look at the bill, it says $1,400 in it.

Answer: You are correct. Our reading of the law has it the following way. The original law set in 2017 had it listed at $1,400, but the refundable portion increased for inflation, so by 2024 it had increased to $1,700. The new OBBB doesn’t reset the clock to $1,400 but continues the increases for COLA. This means that while the law technically says $1,400, it will likely be $1,700 for 2025 and increase from there.

Ezri: Are people living in Israel eligible for the higher tax credit?

Answer: Yes! U.S. citizens abroad still file Form 1040 and can claim the full $2,200 per qualifying child. While a law was passed around 2021 or so that temporarily increased the credit, it didn’t apply to people in Israel, and this new law does.

Ezri: Why would I ever use the full $2,200 credit if my Israeli taxes are higher than U.S. taxes?

Answer: If Israeli tax wipes out your U.S. liability, the nonrefundable layer has no value that year. The refundable layer can still put cash in your pocket if your earned income is high enough. Many instances may create U.S. taxes even with high Israeli taxes. So this refund is helpful.

Ezri: Does it help offset that terrible Net Investment Income Tax of 3.8% on passive income?

Answer: The refundable portion does, but not the nonrefundable portion of the CTC.

Ezri: Is there an income phaseout for the CTC? 

Answer: The phaseout remains unchanged. It starts at a modified adjusted gross income of $200,000 for single filers and $400,000 for joint filers. Above those thresholds, the credit is reduced $50 for every $1,000 of extra income until it disappears.

Ezri: How old do the kids phase out?

Answer: Children must be under age 17 on December 31 of the tax year to receive the CTC. There is an alternative nonrefundable smaller credit if the Children are 17 or older and still live at home.

Ezri: When does this new law go into effect? Does it apply to my 2024 tax return if I haven’t filed yet?

Answer: The bigger refundable limit starts with 2025 returns you will file in early 2026. The higher $2,200 credit also takes hold for 2025 returns, and the expiration date that loomed in 2026 is gone.

Ezri: Do my kids need a Social Security number to count for the CTC?

Answer: Yes. Your return must list each child’s Social Security number, and at least one spouse must also have a Social Security number on a joint return.

Ezri: What if the embassy lost my application or cannot give me an appointment?

Answer: File an extension and keep pressing the embassy for the number. Without it, the IRS will disallow the credit.

Ezri: I heard somewhere that the new law would change things, so both spouses need Social Security numbers on their return. Is this true?

Answer: No. While that was in early drafts of the bill, it was changed to be unnecessary. Congress now accepts one spouse’s Social Security number on a joint return.

Ezri: I do not want to ask the IRS for it because if I do not bother them, then they won’t bother me. Does that make sense?

Answer: The IRS is already entitled to your tax information. Not claiming a credit does not reduce future audit risk or tax due. It only leaves money on the table.

Ezri: I did file a return before, but the IRS never sent me the refund. What should be done? 

Answer: It depends on how long ago you filed. Use the online Where’s My Refund tool. If it shows “Issued”, ask your bank to trace the deposit. If it shows “Processed but not sent”, file Form 3911 to initiate a refund trace. Common holdups include identity verification and offsets for back taxes or student loans.

Ezri: You have been incredibly helpful! If we need help with back-filing, who do we get in touch with?

Answer: Happy to help. You can contact our team.

The new Child Tax Credit is richer, indexed for future price rises, and easier for families to claim. Please see our previous blog for more information on the new OBBB and its other changes. You can also tune in to our podcast episode on the topic:

.