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. These changes are aimed at providing financial relief to taxpayers
who have finalized adoptions or initiated the process before 2025. The maximum credit available for the 2025 tax year is $17,280 per eligible child, with a portion of this credit now being refundable up to $5,000 per qualifying child. Notably, Indian tribal governments have been granted the same authority as state governments to determine if a child has special needs, which can influence eligibility for the credit. The IRS has also clarified that taxpayers who adopt their spouse's child or engage in surrogate parenting agreements are not eligible for this credit. Eligible expenses for the credit include adoption fees, court costs, legal fees, and adoption-related travel expenses.
Why It's Important?
The changes to the Adoption Tax Credit are significant as they provide increased financial support to families involved in the adoption process, potentially easing the financial burden associated with adoption. By making a portion of the credit refundable, the IRS is allowing more families to benefit, even if they do not have a tax liability. This could encourage more adoptions, particularly of children with special needs, as the financial incentives are more accessible. The inclusion of Indian tribal governments in determining special needs status is a notable step towards recognizing the sovereignty of these governments and ensuring that their members have equitable access to federal benefits.
What's Next?
Taxpayers interested in claiming the Adoption Tax Credit should utilize the IRS's Interactive Tax Assistant to determine their eligibility. As the changes take effect, it is expected that there will be increased engagement from families considering adoption, particularly those who may have been previously deterred by the financial implications. The IRS will likely continue to provide guidance and resources to ensure taxpayers understand the new provisions and can maximize their benefits.
