Plan Now: Major Adoption Tax Credit 2025 Changes You Need to Know

If you’re considering adoption or in the process, planning to finalize it in 2025 or later, there’s important news you should know. The federal Adoption Tax Credit is getting an update, and these changes could offer meaningful financial support to adoptive families.

At Lifetime Adoption, we understand that the cost of adoption can be overwhelming, but the Adoption Tax Credit is one way families can recover a portion of their qualified expenses. It is important to understand what the Adoption Tax Credit is, how it works, and the changes regarding refundability.

Table of Contents

• What Is the Adoption Tax Credit?
• Exciting Changes Beginning in 2025
• What Does “Partially Refundable” Mean?
• The Special Needs Exception
• Adoption Tax Credit Tips for Adoptive Families
• The Adoption Tax Credit in 2025

What Is the Adoption Tax Credit?

The Adoption Tax Credit is a tax credit provided by the federal government to help families with the costs of adoption. This credit applies to a variety of qualified adoption expenses, including:

• Adoption agency and attorney fees
• Home studies (including background checks)
• Court costs and finalization fees
• Travel related to the adoption
• Pregnancy-related expenses
• Other necessary and reasonable adoption-related expenses

Unlike a tax deduction, which reduces your taxable income, a tax credit reduces the amount of tax you owe, dollar for dollar. For example, if you owe $6,000 in taxes and qualify for a $5,000 Adoption Tax Credit, your tax bill is reduced to $1,000. The credit is available for each child adopted, which is particularly helpful for families adopting twins or sibling groups.

Exciting Changes Beginning in 2025

Several key updates to the Adoption Tax Credit will take effect beginning in 2025. These include:

• The maximum Adoption Tax Credit amount is increasing to $17,280 per child (up from $16,810 in 2024).
• The credit will now be automatically indexed to inflation, meaning it will adjust (without an act of Congress) in future years to keep pace with rising costs.
• The income phase-out range begins at a modified adjusted gross income (MAGI) of $259,190 and ends at $299,190.
• A new provision allows for partial refundability. Families may receive up to $5,000 as a refundable credit, even if they do not owe that amount in taxes.

These updates are especially significant for families with moderate or lower incomes, who in the past may not have been able to benefit from the Adoption Tax Credit fully.

What Does “Partially Refundable” Mean?

One of the most impactful changes to the Adoption Tax Credit in 2025 is partial refundability. Previously, the credit was nonrefundable, which meant families could only use it to offset taxes they owed. If they owed little or no tax, they couldn’t access the full credit.

Starting in 2025, up to $5,000 of the credit is refundable. That means if your taxes owed are low, you can still receive a refund check of up to $5,000, depending on your qualified expenses and income level. This change makes the Adoption Tax Credit more accessible to a wider range of adoptive families. It also provides a benefit for a wider range of adoptions, like kinship and through the foster system.

The Special Needs Exception

If you adopt a child who is determined by your state to have special needs, you may be eligible for the full amount of the Adoption Tax Credit, even if you didn’t incur significant out-of-pocket expenses. In many foster-to-adopt cases, the adoption costs are low or even waived by the state, but families can still qualify for the credit.

Each state defines “special needs” differently, but it often includes factors such as age, sibling status, race, or medical and emotional conditions. Your adoption professional can help you obtain the proper documentation from the state confirming the child’s eligibility.

Adoption Tax Credit Tips for Adoptive Families

If you are planning to adopt or are already in the process, here are a few practical steps you can take now to prepare to maximize the Adoption Tax Credit benefits for your adoption:

1. Keep complete records of all adoption-related expenses, including receipts, mileage logs, legal documents, and travel costs.
2. Ask your employer if they offer adoption assistance benefits. Employer-provided adoption benefits may also qualify for a tax exclusion.  If they don’t have adoption benefits, advocate for them. You can find help online with the Adoption-Friendly Workplace Toolkit.
3. Work with a CPA who is familiar with adoption and the Adoption Tax Credit. Filing correctly is essential to claiming the full benefit (and avoiding an audit!)
4. Retain any documentation for children with special needs, as this will likely be required to claim the full Adoption Tax Credit in those special needs situations.

The Adoption Tax Credit in 2025

The Adoption Tax Credit can be a valuable financial resource for adoptive families, helping to reduce the cost of building your family through adoption. The new updates, including an increased credit amount and partial refundability, are welcome changes that make the credit more effective and inclusive.

At Lifetime Adoption, we are here to walk alongside you, not just during the adoption process but in preparing for what comes next. We encourage all adoptive families to take time to learn about the Adoption Tax Credit and speak with a qualified tax advisor about how to make the most of this benefit.

Disclaimer: This blog post is for informational purposes only and is not intended to provide legal or tax advice. Please consult a qualified tax professional for guidance related to your specific situation.