How much do eggs cost in your town? It’s still a pretty tough economy for many Americans, and we are all concerned about inflation, grocery prices, housing costs, and other issues that trickle down to our wallets. On top of that, it’s time to start thinking about filing 2025 federal and state taxes. If you have adopted a child (or children!) in the last few years, we want to help you maximize the Adoption Tax Credit in your 2025 personal federal taxes. We hope this information helps ease some of the financial burden your family may be experiencing.

The Adoption Tax Credit for 2025 has increased to $17,280 per child.

And big new news: the Adoption Tax Credit is now partially refundable ($5,000 of the $17,280)! That means you can use the $12,280 non-refundable portion of credit if you have a federal income tax liability.

Once again, our friend and guest expert, Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit Specialist® at Bill’s Tax Service, created a guide to help you understand the Adoption Tax Credit. She covers the details you need to claim and maximize your 2025 tax filing credit. Please share it with others in your community who have recently adopted, too!

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Adoption Tax Credit Guide: 2025

Families should understand that the Adoption Tax Credit can be an essential tool when they adopt, whether through the foster care system, domestically, or internationally. Adoption continues to change rapidly worldwide. International adoptions continue to decrease. The Adoption and Foster Care Analysis and Reporting System (AFCARS) estimates there were more than 328,000 children in the child welfare system in fiscal year 2024.

The one constant throughout the changing landscape of adoption is the need for families to educate themselves about the financial resources available to those considering adoption or in the process of adopting. This federal credit is one of the most significant financial resources available to them. There are also many states that either have a credit or income exclusion for their state returns.

Who can apply for the Adoption Tax Credit?

An adoptive family can apply the Adoption Tax Credit toward their federal tax liability when they file their 2025 tax return. The applied credit can reduce what they owe in federal income taxes for the year. It is now a partially refundable tax credit. It is an excellent permanent credit of $17,280 per child, up from the 2024 credit of $16,810.

*Please note two other significant changes to help you maximize the Adoption Tax Credit:

  1. The Adoption Tax Credit will now cover up to $5,000 of self-employment tax & early pension distribution penalty, with the $5,000 refundable portion of the maximum of $17,280.
  2. Also, with Qualified Birth or Adoption Distribution (QBOAD), each spouse can take $5,000 from their qualified pension plan without penalty the year the adoption is finalized.

How can we qualify for the Adoption Tax Credit 2025?

You can qualify for this credit if you adopted a child (except your spouse’s child) and paid out-of-pocket expenses relating to that adoption. The tax credit amount you qualify for directly relates to how much you spent on those adoption-related expenses.

Income can also be excluded from taxation through an employer-provided adoption benefits program. You may both claim a credit and an exclusion for the same adoption. However, you cannot claim both for the same expenses.

What expenses are covered?

Qualified Adoption Expenses are allowed under the Adoption Tax Credit. They include any expenses necessary for the adoption. A few examples of qualified expenses include:

  • court fees
  • home study
  • lawyer fees
  • medical examinations/physicals
  • travel expenses (meals, lodging, airline, gas)
  • agency fees
  • dossier fees
  • any other fees that are directly related to the adoption

The most frequently asked question is whether the living expenses of an expectant woman paid by the prospective adoptive parents in domestic infant adoptions are qualified adoption expenses under the Adoption Tax Credit. They are not.

A good rule of thumb when determining what adoption expenses to include for the Adoption Tax Credit is to use those expenses you know are covered. Most adoptions, other than from foster care, will exceed the credit amount, so choose the expenses that are clearly considered “qualified adoption expenses” when filing.

When can we apply?

International and foster care adoptions must be finalized before you can apply for the Adoption Tax Credit.

Expenses for domestic adoptions that are not yet final can be taken in the next tax year after the expenses are paid, or you can wait until the adoption is final.

Finding a Tax Specialist – another article with Becky Wilmoth

How does the Adoption Tax Credit work?

Line 16 of the Federal 1040 form shows your federal tax liability before any non-refundable credits (such as the $500 non-refundable portion of the child tax credit) are applied. The difference between your tax liability and your federal withholding is either what you get as a refund or what you owe the federal government when you do your tax return.

The Adoption Tax Credit comes in on Line 30 of your Federal 1040 from Schedule 1 and Form 8839 and covers your tax liability up to $17,280 per child for 2025. You will get your withholding back (if the tax liability is less than the maximum credit amount), and the refundable portion of the child tax credit ($1,700) drops down to an additional child tax credit (if you qualify).

The refundable portion ($5,000) of the Adoption Tax Credit ($17,280) can be calculated on Line 30 of the 1040. Federal tax forms are available for download from the IRS’s website.

If you do not use all of the non-refundable portion ($12,280) credit in the first year, you can carry it forward for up to 5 years.

What about special needs adoptions?

If you adopt a child with special needs through foster care, you may be entitled to claim the full amount of the adoption tax credit even if you did not have expenses. Each state has different criteria that qualify a child as “special needs.” The IRS otherwise defines “special needs” as “hard to place” without a Subsidy Agreement in place.

Where do I get a special needs declaration?

The state where the adoption is finalized issues special needs designations when appropriate. To qualify as a special-needs adoption, you must have a signed adoption Subsidy Agreement with the state. Some states call it the “Adoption Eligibility Assistance Determination.”

What about “special needs” via international adoption?

Unfortunately, international adoptions do not qualify for special-needs designations for IRS purposes. Therefore, the Adoption Tax Credit will only be for your qualified adoption expenses.

Documentation You Need to File Your Claim

You will need to have the following paperwork ready to document your Adoption Tax Credit filing:

  1. Final Judgment of Adoption (all adoptions)
  2. Adoption Assistance Eligibility Determination (Subsidy Agreement) that declares the child’s special needs if claiming credit for a child declared special needs by your state through foster care (foster adoptions)
  3. A home study/placement agreement completed by an authorized placement agency (all adoptions except foster)
  4. All documentation of paid qualified expenses (all adoptions except foster)
  5. Signed and dated supporting documents for each adoption. The IRS does not accept any Home study/Placement agreement, Judgment of Adoption, or Subsidy agreement/Eligibility agreement without it being signed and dated by the proper authorities.

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Do You Need More Information About the Adoption Tax Credit?

CreatingaFamily.org also offers an Adoption Tax Credit resource page, where we maintain the updated, relevant resources to help you file your claim.

The Adoption Tax Credit Online Course

For even more detailed information about the Adoption Tax Credit, consider the CreatingaFamilyEd.org online course, Adoption Tax Credit. This online, downloadable course is 1 hour long. You can earn a Certificate of Completion upon passing the quiz at the end with 80% accuracy. The course covers all the information in this guide, and more!

Check with your agency or caseworker to see if this course counts toward fulfilling your education requirements.

Let’s Talk About Adoption – a free guide

The Adoption Tax Credit Needs Your Voice.

Many years ago, the Adoption Tax Credit was fully refundable. At this time, it is partially refundable: $5,000 of the $17,280 is refundable, and $12,780 is non-refundable.

Advocacy efforts are still working to return it to that full refundable benefit. However, the effort needs your voice. To learn more about the Adoption Tax Credit, including its history, go to Adoption Tax Credit Advocates. You can also learn how to join the advocacy with legislators to return it to a fully refundable credit.

The National Council for Adoption also tracks legislative initiatives, including the Adoption Tax Credit Refundability Act. Their Advocacy page offers many opportunities to make your voice heard on adoption issues in the US.

Thank you, Becky Wilmoth, Enrolled Agent and Adoption Tax Credit Specialist® (the author of this guide) at Bills Tax Service, and Josh Kroll, the Adoption Tax Credit specialist at Families Rising (formerly NACAC). Each year, they join us for the annual podcast and online course. They are the two most knowledgeable people we know on the Adoption Tax Credit. Our community has found them to be extraordinarily helpful on the topic.

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