What's Happening?
The Internal Revenue Service (IRS) has announced updates to the Adoption Tax Credit following the enactment of the One Big Beautiful Bill Act. Taxpayers who finalized an adoption in 2025 or began the process
before this year may qualify for the credit, which can be claimed for eligible expenses related to various types of adoptions, including international, domestic, private, and public foster care. The maximum credit available for the 2025 tax year is $17,280 per eligible child. Notably, the credit is now partially refundable, allowing up to $5,000 to be refunded per qualifying child. However, any non-refundable amount carried forward cannot be used to calculate a refundable portion in future tax years. Eligible children must be under 18, or if older, unable to care for themselves due to physical or mental conditions. Additionally, Indian tribal governments now have the authority to determine special needs status for the purpose of claiming the credit.
Why It's Important?
The changes to the Adoption Tax Credit are significant as they provide financial relief to families undertaking the adoption process, which can be costly. By making part of the credit refundable, the IRS is offering more immediate financial support to adoptive families, potentially encouraging more adoptions. This could have a positive impact on the adoption rates, particularly for children with special needs, as the credit can be claimed even if no qualified adoption expenses were paid. The inclusion of Indian tribal governments in determining special needs status also represents a step towards greater inclusivity and recognition of tribal authority in adoption matters. These changes may influence adoption policies and practices across the U.S., affecting families, adoption agencies, and social services.
What's Next?
As the changes take effect, taxpayers considering adoption will need to familiarize themselves with the new provisions to maximize their benefits. The IRS provides resources such as the Interactive Tax Assistant to help determine eligibility. Adoption agencies and financial advisors may also play a crucial role in guiding families through the updated tax credit process. Additionally, there may be further legislative discussions or adjustments to adoption-related policies as stakeholders assess the impact of these changes. Monitoring the adoption rates and feedback from affected families will be essential in evaluating the effectiveness of the new tax credit structure.
