Education and Family Tax Benefits Under Reconciliation Bill H.R. 1

Reconciliation Bill H.R. 1 is comprehensive legislation that includes provisions affecting all individuals. From a tax perspective, the bill is mainly structured around changes to existing Internal Revenue Code (IRC) provisions, rather than focusing on the introduction/creation of entirely new tax laws. Several of these changes include provisions aimed at supporting families and expanding access to education-related tax benefits.

Education-Related Tax Provisions

• IRC §25A (Education Credits):
  The bill references education credits under §25A, including the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC). For tax years beginning after 2025, a valid Social Security Number (SSN) is required for both the taxpayer and the student to claim these credits. The phaseout ranges for 2026 are $160,000–$180,000 for joint filers and $80,000–$90,000 for single filers and heads of household. Qualified expenses must be reduced by any tax-free education benefits (such as 529 plan distributions) and by amounts used to claim an education credit, even if claimed by another taxpayer.
• IRC §529 (Qualified Tuition Programs):
  The bill expands qualified expenses for 529 plans. For distributions after July 4, 2025, qualified expenses include not only tuition, but also curriculum, books, online materials, tutoring (with requirements), standardized test fees, dual enrollment fees, and educational therapies for students with disabilities. The annual limit for K–12 distributions increase to $20,000 per beneficiary for distributions after December 31, 2025. 529 plans can also be used for postsecondary credentialing expenses, such as certificate, licensing, and apprenticeship programs, as well as required testing and continuing education. Expenses used for education credits cannot also be used for tax-free 529 distributions.
• IRC §127 (Employer-Provided Educational Assistance):
  Employer-provided educational assistance under §127 now permanently includes up to $5,250 per year in student loan repayments as a nontaxable benefit. This limit applies to the combined total of tuition assistance and student loan repayments.

Eligibility for education-related tax benefits continues to depend on income, filing status, student status, documentation of qualified expenses, and compliance with new SSN requirements and coordination rules.

Family and Dependent-Related Tax Provisions

• IRC §24 (Child Tax Credit):
  The Child Tax Credit (CTC) has increased to $2,200 per qualifying child for 2025 and is indexed for inflation after said year. The refundable portion is $1,700 for 2025 and 2026, also indexed for inflation. A valid SSN is required for each qualifying child and for the taxpayer (or at least one spouse on a joint return). ITIN-only filers are not eligible for the CTC but may claim the Other Dependent Credit (ODC) if otherwise eligible. The CTC begins to phase out at $400,000 MAGI for joint filers and $200,000 for all other filers, reduced by $50 for each $1,000 (or fraction thereof) above these thresholds.
• Other Dependent Credit (ODC):
  The $500 nonrefundable Other Dependent Credit (ODC) is made permanent. Dependents must meet the definition under IRC §152, but an ITIN is sufficient. The ODC phases out at the same MAGI thresholds as the CTC.
• IRC §21 (Child and Dependent Care Credit):
  For tax years beginning after 2025, the maximum credit rate increases to 50% of eligible expenses (up from 35%), with a new two-tier phaseout structure based on AGI. The maximum amount of eligible expenses remains $3,000 for one qualifying individual and $6,000 for two or more. Expenses must be reduced by any employer-provided dependent care benefits excluded from income.
• IRC §152 (Definition of Dependent):
  The definition of a dependent continues to follow IRC §152, including both qualifying children and qualifying relatives. Administrative rules now require more stringent identification and due diligence for claiming these credits.

Impact on Taxpayers

The Impact on any individual taxpayer will depends on:

• Adjusted gross income and filing status
• Number and type of dependents
• Qualified education and care expenses
• Interaction with existing credits, exclusions, and phaseouts

Not all taxpayers will experience a change in tax liability, and some effects may be indirect or non-tax in nature.

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