The adoption tax credit gets an upgrade for 2025

Adoption is a meaningful milestone for families and can also involve considerable financial investment. For clients who finalized an adoption in 2025 or began the process in earlier years, recent changes to the federal adoption tax credit make that benefit more accessible and, in some cases, refundable. These updates matter, especially when clients are unsure whether their situation qualifies or how much of the credit they can actually use.

Beginning in 2025, the adoption credit includes a refundable component and expanded eligibility rules that tax professionals should understand before filing the tax return.

What’s new for the adoption credit in 2025

For tax years beginning after Dec. 31, 2024, up to $5,000 of the adoption credit is refundable per eligible child. That means qualifying taxpayers may receive up to $5,000 as a refund even if their tax liability is limited or reduced to zero.

For 2025, the maximum adoption credit remains $17,280 per eligible child. Any amount above the refundable portion is nonrefundable but may be carried forward for up to five years, subject to income limits. (The refundable portion itself cannot be carried forward and applies only in the year the adoption is finalized.)

Income phaseouts still apply. The credit begins to phase out when modified adjusted gross income (MAGI) reaches $259,191 and is fully phased out at $299,190.

Who qualifies as an eligible child?

An eligible adopted child must be under the age of 18 or be physically or mentally incapable of caring for themselves. Different rules apply depending on the type of adoption.

• For domestic adoptions, taxpayers may claim qualified adoption expenses even if the adoption is not finalized. For foreign adoptions, expenses generally become eligible only in the year the adoption is completed.
• Special-needs adoptions receive separate treatment. Beginning in 2025, Indian tribal governments have the same authority as states to determine whether a child qualifies as having special needs. Taxpayers who adopt an eligible U.S. child with special needs may be able to claim the full credit even if they did not pay any qualified adoption expenses.
• Adoption of a spouse’s child does not qualify for the credit. Surrogate parenting arrangements also do not qualify.

Filing status considerations

• Single taxpayers, heads of household or qualifying surviving spouses may qualify for the adoption credit. 
• Married taxpayers generally must file jointly to claim the credit. 
• Married filing separately is allowed only in limited situations, such as when spouses lived apart for the last six months of the year and meet specific support and residency requirements.

Qualified adoption expenses

Qualified adoption expenses must be reasonable, necessary and directly related to the legal adoption of an eligible child. These expenses may include:

• Adoption agency fees
• Court costs and legal fees
• Adoption-related travel expenses, including meals and lodging
• Other expenses directly related to the legal adoption

Certain expenses may qualify even if paid before an eligible child is identified, such as home study fees paid early in the adoption process. Expenses reimbursed by an employer or paid by government programs do not qualify.

Employer-provided adoption benefits

Employer-provided adoption benefits are payments made under a written qualified adoption assistance program to cover adoption expenses. These benefits are reported on Form W-2, Box 12, Code T, and on Form 1040, Line 1f.

Taxpayers may exclude up to $17,280 per child of employer-provided adoption benefits from income for 2025. However, expenses used to calculate the income exclusion cannot also be used to claim the adoption credit. In other words, taxpayers can claim both benefits, but not for the same expenses - no double dipping.

For foreign adoptions, employer-provided benefits may be excluded only after the adoption becomes final.

How the adoption credit is calculated

Taxpayers must complete Form 8839, Qualified Adoption Expenses, to calculate the adoption credit and any allowable income exclusion. The form determines the refundable and nonrefundable portions of the credit, including the carryforward of any unused nonrefundable credit.

Accurate recordkeeping is essential. Adoption agreements, court documents, receipts and employer benefit records should be retained to support the credit calculation and any income exclusion.

Adoption credit takeaway for 2025 tax filings

The adoption tax credit is more flexible in 2025 than in prior years, particularly due to the new refundable portion. At the same time, eligibility rules and income limits remain highly technical, especially when adoption expenses overlap with employer-provided benefits. Paying close attention to when expenses are incurred and how Form 8839 is completed is critical to ensuring clients receive the full benefit they qualify for.

If you want deeper guidance on applying these rules, NATP’s upcoming webinar Helping Clients Navigate the Adoption Tax Credit (March 3, 2026, 2-3 p.m. CT or on demand) walks through real-world scenarios and recent legislative updates, with a practical focus on Form 8839 preparation. It’s a helpful next step for tax professionals advising clients on adoption-related tax issues.