IRS Updates Adoption Tax Credit to Make Adoption More Affordable

The Internal Revenue Service recently highlighted significant enhancements to the Adoption Tax Credit, making adoption more affordable and accessible for families who finalized adoptions in 2025 or began the process before that year. These changes stem from the One, Big, Beautiful Bill (OBBBA), a major piece of tax legislation enacted in 2025.

If you work with clients pursuing adoption — whether domestic, international, or through foster care — understanding these changes can help you maximize the benefits available and offer valuable planning guidance.

What’s New with the Adoption Tax Credit?

Here’s a breakdown of the most important updates practitioners need to know:

1. Increased Maximum Credit for 2025

For tax year 2025, the maximum Adoption Tax Credit is $17,280 per eligible child — an increase from prior years due to inflation adjustments and legislative changes.

2. Partial Refundability Up to $5,000

One of the most impactful changes is that the credit is now partially refundable. This means eligible families can receive up to $5,000 back even if they don’t owe federal income tax. The portion over that amount remains nonrefundable but may be carried forward to future tax years.

This change is especially meaningful for lower-income families or those whose tax liability might otherwise prevent them from benefiting fully from the credit.

3. Expanded Authority for Tribal Governments

Under the updated rules, Indian tribal governments now have the same authority as states to determine whether a child has special needs for purposes of the adoption credit. This expansion broadens eligibility and helps more families claim the full credit even if they had no documented qualified expenses.

Who Qualifies for the Adoption Tax Credit?

To claim the credit, taxpayers must meet certain criteria:

• Eligible Child: The adopted child must generally be younger than 18 at the time of adoption finalization. If older, the individual must be unable to care for themself due to physical or mental incapacity.

  
  

• Adoption Type: The credit applies to international, domestic, private, and public foster care adoptions.

  
  

• Expenses Covered: Qualified expenses include reasonable and necessary adoption fees, court costs and legal fees, and adoption-related travel expenses (meals and lodging).

  
  

• Form 8839: Taxpayers should use Form 8839 (Qualified Adoption Expenses) to calculate and claim the credit.

  
  

It’s important to note that certain situations do not qualify for the credit, such as adopting a spouse’s child or entering into a surrogate parenting arrangement.

Practical Implications for Tax Professionals

These changes to the Adoption Tax Credit have real implications for tax planning and filing:

✔ More Refund Potential for Families

Since part of the credit is refundable, families with limited tax liability can now benefit even more. This feature opens the door for larger refunds for eligible taxpayers.

✔ Broader Eligibility Through Tribal Determinations

The expanded special-needs criteria help ensure that families adopting children with documented needs can claim the full credit, even without out-of-pocket qualified expenses.

✔ Planning Opportunities

Advising clients on timing expenses and adoption finalization can potentially maximize the credit available in a given tax year. Additionally, clients benefiting from employer adoption assistance may also exclude certain amounts of that income from taxation (subject to rules and limits).

Conclusion

The IRS’s updated guidance reflects meaningful enhancements to the Adoption Tax Credit intended to reduce the financial burden of adoption and help more families access the support they need. For tax professionals, these changes reinforce the importance of staying current with evolving tax law, especially when advising clients navigating adoption-related tax issues.

By understanding the updated rules — including increased credit limits, partial refundability, and expanded eligibility — you can help clients make the most of the tax benefits available under today’s law.

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Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.