Great news for adoptive families in 2025 — the Federal Adoption Tax Credit is now partially refundable, making adoption more affordable for lower- and middle-income families across the U.S.
This groundbreaking change has the potential to help thousands of families, especially those adopting special needs children, afford the costs of growing their family through adoption.
You don’t have to figure out the financial side alone. See how we help you prepare and protect your budget.
The New Refundable Adoption Tax Credit: What It Means for Families
The Adoption Tax Credit is now partially refundable; a long-awaited change that means adoptive families can receive up to $5,000 in cash back, even if they don’t owe federal income taxes.
This refundable portion is designed to help lower- and middle-income families who previously couldn’t benefit from the full value of the credit due to limited tax liability.
Now, even if your tax bill is small or zero, you may still be eligible for a refund check based on your qualified adoption expenses.
Why Refundability Matters
Previously, the Adoption Tax Credit only reduced the amount of taxes you owed. Any unused credit was essentially lost for that tax year.
With the new refundable provision, the process is now more accessible to families earning under $250,000/year. With this update:
- Families receive real money back, not just a tax break.
- Refunds can cover upfront adoption costs, like home studies, travel, and legal fees.
- Working-class and lower-income families have expanded access to adoption support.
This change marks a significant step toward making adoption more affordable and equitable for all families, especially those adopting special needs children, who may qualify for even more support under the new law.
The 2025 Adoption Tax Credit at a Glance
The reforms to the Federal Adoption Tax Credit were passed as part of the “One Big Beautiful Bill”, a budget reconciliation package signed into law in July 2025 to improve access to family-building resources nationwide.
The updated tax credit includes:
- Partial refundability added — up to $5,000 can be refunded, even if you owe no taxes
- Maximum credit increased to $17,280 per child, adjusted for inflation
- Applies to adoptions finalized after December 31, 2024
- Increased support for special needs adoptions
These updates ensure more families, especially lower- and middle-income households, can access meaningful financial help when growing their family through adoption.
Have more questions about the Adoption Tax Credit? Get answers now.
Do I Qualify for the Full Adoption Tax Credit in 2025?
Income Eligibility:
- Full credit available for families with MAGI under $252,150
- Phase-out range: $252,150–$292,150
- No credit for incomes over $292,150
- Joint filing required if married (with some exceptions)
Child Eligibility:
- Must be under 18, or unable to care for themselves due to mental/physical limitations
- Special needs child must be a U.S. citizen, not returnable to their birth family, and difficult to place without assistance
Note: The tax credit applies to both private and foster care adoptions, and both are funded equally.
The IRS has a helpful tool for prospective parents to double-check their eligibility.
What Adoption Expenses Are Covered by the Tax Credit?
The Adoption Tax Credit reimburses many qualified adoption-related costs, including:
- Agency and placement fees
- Attorney and court costs
- Travel and lodging
- Re-adoption expenses for international adoptions
There are a few expenses the tax credit explicitly disqualifies:
- Stepchild adoptions
- Surrogacy-related expenses
- Expenses covered by employer benefits or other tax provisions
- Duplicate federal/state reimbursements
- Illegal adoption payments
You’ll use IRS Form 8839 to document and categorize these expenses.
How to Claim the 2025 Adoption Tax Credit (Step-by-Step Guide)
Here’s how to apply for your adoption credit using IRS Form 8839:
Step 1: Determine When to Claim Expenses
- Domestic adoptions: Claim as expenses are incurred, even before finalization
- Foreign adoptions: Wait until finalization to claim all expenses
- Special needs adoptions: Claim after finalization only
Step 2: Obtain Your Child’s Identification Number
Accepted IDs:
- Social Security Number (SSN)
- ITIN or ATIN (use Form W-7A to request an ATIN)
If you don’t yet have an ID:
- File a paper tax return
- Leave ID fields on Form 8839 blank (as allowed by the IRS)
Step 3: Complete IRS Form 8839
- Include income, expenses, and applicable exclusions
- Follow IRS instructions (updated forms expected soon)
Step 4: Keep Your Records
- Save receipts, tax returns, and proof of qualified expenses
- Unused funds can roll forward for up to 5 years
Step 5: Fix Mistakes Promptly
- File an amended return if you make an error
- IRS denial can be appealed, but accuracy is essential
How American Adoptions Helps You Protect and Plan Your Adoption Budget
At American Adoptions, we believe finances should never stand in the way of building your family.
That’s why we go beyond just helping you navigate the Adoption Tax Credit, we help you plan, protect and stretch your adoption budget every step of the way.
Here’s how we support your financial journey:
- Custom budget planning: Our adoption specialists help you build a realistic, personalized budget so you can prepare with confidence.
- Adoption Disruption Insurance: If an adoption opportunity falls through, we don’t just roll your funds into the next match, we refund you directly, so you can decide how to move forward.
- Clear, upfront cost breakdown: Transparency is core to our process. From the very beginning, you’ll receive a full, detailed breakdown of every cost, with no hidden fees and no guesswork, so you can plan with clarity and peace of mind.
By combining the new benefits of the refundable Adoption Tax Credit with our trusted financial protections and planning tools, we help you turn the dream of parenthood into an affordable reality.
Connect with an adoption specialist today at 1-800-ADOPTION fill out our easy contact form to get budgeting support.
