Important Tax News for Adoptive Families
Recent changes in the Adoption Tax Credit will interest potential adoptive parents, especially those who make under $100,000. We have some exciting news to share about changes to the federal adoption tax credit that could make a real difference.
What Changed?
For 2025, up to $5,000 of the adoption tax credit is now refundable.
Previously, the adoption tax credit could only reduce the taxes you owed. If you didn’t owe much in federal taxes (or any at all), you couldn’t benefit from the full credit. Now, families are able to receive up to $5,000 as a cash refund, even if you don’t owe that much in taxes.
Why This Matters for Your Family
Before this change, the adoption tax credit worked differently depending on a family’s income:
- Families making less than $30,000 typically don’t owe federal taxes, so they weren’t in a position to use any of the credit.
- Families making between $30,000 and $50,000 could only use part of the credit, often spread over several years.
- Families making over $100,000 could typically use most of the credit, often within the same year.
This adoption tax credit system created an unfair situation where families with less income received less support for adoption expenses. The new refundable portion ensures that every income bracket is in a position to receive the same financial support.
What This Means for You
For individuals or couples planning to grow their family through adoption, this change could allow them to have $5,000 return to help with adoption expenses. This is a return regardless of how much they owe in federal taxes. The money can go toward things such as: agency fees, legal cost, travel expenses or other adoption-related costs.
In certain cases, families who have adopted in previous years using the non-refundable credit, can benefit from this change.
Important Things to Keep in Mind
While this tax credit change is helpful for some families, here are a few important points to remember:
- It’s still evolving: The IRS hasn’t released final guidance yet on exactly how this will work, so some details may change.
- Individual situation matters: The specifics of when a placement is finalized and whether the child has special needs can affect how and when you can claim the credit
- It’s partially refundable: While $5,000 is now refundable, the rest of the credit still works the old way (non-refundable)
- Eligibility requirements remain the same: Families can still claim the credit for adoptions from foster care, international adoptions, relative adoptions, and private domestic adoptions (except stepchildren)
What's Next?
Our legal department at Heart to Heart Adoptions are keeping a close eye on this situation and will share updates as we learn more from the IRS. Since adoption situations can be unique and tax laws can be complex, we always recommend consulting with a tax professional who understands adoption credits.
The adoption advocacy community has been working hard for years to make this change happen, and while it’s not everything they hoped for, it’s a significant step forward. Many expect this partial refundability to pave the way for the entire credit to become refundable in the future.
We're Here to Help
If you have questions about how this might affect your adoption journey, please don’t hesitate to reach out to us at Heart to Heart Adoptions. Keep in mind that this is a fluid situation – details may continue to evolve based on when placement is finalized and the child’s specific circumstances.
We’re excited to see this change that makes adoption more accessible for families across all income levels. It’s another step toward ensuring that financial barriers don’t prevent loving families from growing through adoption.
