US Supreme Court Justice Oliver Wendell Holmes may have been right that taxes are the price we pay for a civilized society, but does anyone really like the idea of taxes or preparing to file their taxes? And apparently, Albert Einstein once said income taxes were the hardest thing in the world to understand! Indeed, if the father of quantum physics struggled, it’s understandable that we Average Joes might also.

We can’t necessarily explain the entire US tax code and its intricacies. But we can help you prepare for and better understand the 2025 Adoption Tax Credit.

What You Need to Know About the 2025 Adoption Tax Credit

  1. You qualify for the Adoption Tax Credit if you adopted a child and paid out-of-pocket expenses necessary for the adoption. (The credit is unavailable for stepparent adoption or embryo donation/adoption.)
  2. The 2025 Adoption Tax Credit is $17,280 per child. The big news is that it’s also now partially refundable – up to $5,000, thanks to rigorous and diligent advocacy.
  3. You can apply the partially refundable $5,000 to offset self-employment tax.
  4. Each spouse may also take up to $5,000 from their qualified pension plan without penalty in the year you finalize the adoption, under a Qualified Birth or Adoption Distribution (QBOAD).
  5. If you adopted a child with special needs from foster care, you don’t have to have paid any out-of-pocket expenses to get the full credit. Adoptions designated as Special Needs occur when the state provides a subsidy for the child.
  6. No international adoption qualifies as Special Needs for the Adoption Tax Credit.
  7. If your employer has an adoption benefit program, you may be able to exclude that income from taxation. You may claim both a tax credit and exclusion for the same adoption, but not for the same expense.
  8. If you do not have enough tax liability to use up the credit in the first year, you can carry it over for up to 5 years.
  9. You do not have to send any documentation to the IRS when you file your claim. However, please keep the following documents accessible and clearly marked, in case the IRS requests documentation:
    • The final Judgment of Adoption (can be from a US court or foreign court)
    • A signed, dated copy of your home study.
    • A signed, dated copy of the Adoption Assistance Eligibility Determination, also known in some states as a Subsidy Agreement, if you adopted from foster care and are claiming the child has special needs.
    • Proof of payment for all “qualified adoption expenses” (acceptable in the form of a bank statement, credit card bill, receipts, etc. (Note: these do not apply to foster care special needs adoptions.)
  10. Save all documentation for seven (7) years in case the IRS decides to audit your returns or this credit becomes fully refundable again.

Source:

The 2025 Adoption Tax Credit – Our guests for this annual interview were Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit specialist at Bill’s Tax Service, and Josh Kroll, the Adoption Tax Credit specialist at Families Rising. They are the two most knowledgeable people we know about the federal Adoption Tax Credit. We are grateful for their guidance and for their support of the families in our community.

For more in-depth information that will prepare you well to file and maximize your claim when you file your federal taxes, visit the Adoption Tax Credit resource page.

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