Adoptive families now have access to expanded financial support thanks to significant updates to the federal Adoption Tax Credit, introduced through the One Big Beautiful Bill Act (OBBBA). These changes are designed to make adoption more affordable and accessible, especially for lower- and middle-income households.
For adoptions finalized in 2025, the maximum credit available for qualified expenses is $17,280 per child (up from $16,810 for 2024), adjusted annually for inflation. In a groundbreaking shift, up to $5,000 of that amount is now refundable. This means eligible families can receive a portion of the credit as a refund, even if they owe no federal income tax. Previously, the credit was entirely non-refundable, benefiting only those with significant tax liability. The credit and the exclusion apply to international, domestic, private or public foster care adoptions.
Income limits have also been adjusted under OBBBA. For the 2025 tax year, the full credit is available to taxpayers with modified adjusted gross income (MAGI) up to $259,190. The credit phases out between $259,190 and $299,190 and is unavailable to those with MAGI above that range. These updated thresholds, indexed for inflation, broaden eligibility for families in higher cost-of-living areas while keeping the benefit focused on those most in need of support.
To claim the Adoption Tax Credit, married couples are generally required to file a joint tax return. While exceptions exist for some instances of married individuals filing separately, those who qualify may be able to amend prior returns to change their filing status if necessary. In some states that permit second-parent adoption, registered domestic partners may also be eligible for the credit. However, expenses related to adopting a spouse’s child are not eligible. To qualify as an adopted child for the credit, the child must be under the age of 18 or be physically or mentally incapable of caring for themselves.
If a state or Indian tribal government determines a child has special needs—meaning they are a U.S. citizen or resident, cannot return to their birth family, and are unlikely to be adopted without assistance—families may qualify for the full credit, even if they didn’t incur qualified adoption expenses.
Qualified adoption expenses remain the same and include adoption fees, court costs, attorney fees, travel expenses, lodging expenses, and other related costs directly associated with the legal adoption of an eligible child.
If your employer offers adoption benefits to cover qualified expenses, you may be able to exclude those benefits from your taxable income. For 2025, up to $17,280 can be excluded, reducing the amount of income subject to federal tax. The income exclusion is subject to the same income phaseouts as the credit. To qualify for this exclusion, the benefits generally must be provided under a written, qualified adoption assistance program. They may be paid either directly by the employer or through a third-party provider. The exclusion is available through a qualified adoption assistance program and must be calculated before applying the credit using IRS Form 8839.
The income exclusion is separate from the adoption tax credit and offers additional financial relief, but you cannot use the same expenses to claim both benefits. Any eligible employer-provided adoption assistance must be applied as an exclusion before determining the remaining qualified expenses for which the credit is available. To qualify, the child must be a U.S. citizen or resident, cannot be returned to their parents, and won’t be adopted without assistance. This means that if you’re adopting a child determined by your state to have special needs or to be hard to place, you may still qualify for the income exclusion even if your employer did not provide reimbursement. The tax credit applies equally to both private and foster care adoptions, ensuring consistent support regardless of the adoption path.
ertain expenses do not qualify for the Adoption Tax Credit. These include any costs associated with adopting your spouse’s child or those related to a surrogate parenting arrangement. Additionally, expenses that have already been used to claim another federal tax credit or deduction are not eligible. Costs covered by federal, state, or local government programs, as well as expenses reimbursed by your employer, are also excluded from eligibility.
For domestic adoptions, families can claim qualified expenses as they are incurred, even before the adoption is finalized. For foreign adoptions, however, expenses can only be claimed in the year the adoption becomes final. Special needs adoptions follow a similar rule and must be finalized before the credit can be claimed.
The credit amount applies to each adoption of a child, not each calendar year. If you claim expenses in more than one year for the same adoption effort, you must subtract past credit amounts you claimed from your remaining credit.
To claim the credit or exclusion, families must complete IRS Form 8839 and retain supporting documentation. If a child does not yet have a Social Security Number, families may apply for an Adoption Taxpayer Identification Number (ATIN) using IRS Form W-7A.
With these expanded benefits now in effect, adoptive families have greater financial tools to support their journey. Contact your Stephano Slack tax manager or partner at or TaxInfo@StephanoSlack.com to discuss how the updated adoption credit may apply to your specific situation.
Author Brooke Carroll, CPA, senior manager, oversees the individual tax practice at Stephano Slack’s office in Wilmington, Delaware. She brings exceptional value to client relationships by translating complex tax laws into clear, actionable guidance, helping clients navigate their tax responsibilities with confidence. With over 20 years of public accounting experience, Brooke offers a personalized approach to managing complex tax issues, particularly those involving the IRS, ensuring clients feel informed and supported throughout the process. Brooke can be contacted at 302-295-1025 or bcarroll@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
Recent Comments