Adoption Tax Credit: How It Works

Adopting a child can be a costly process, and the federal adoption tax credit is a way to alleviate some of the financial burden associated with those costs. Consider the credit as a dollar-for-dollar reimbursement on qualified adoption expenses that can be used to reduce your tax liability for the year. For any taxes owed, the federal adoption tax credit can be applied toward that balance, reducing the amount.

What is the difference between a tax deduction and a tax credit?

The big difference between the adoption tax credit and a tax deduction is where and how each is applied. A tax credit is a dollar-for-dollar reduction of taxes owed. A tax deduction, on the other hand, is applied toward your taxable income, meaning that the amount that can be taxed is reduced. Many find a tax credit preferable in that the amount is directly applicable toward taxes owed.

Federal vs State Adoption Tax Credits

While the federal adoption tax credit applies nationwide, some states have their own adoption tax credits that may be applicable in addition to the federal credit. Contact a tax professional in your state for more information on state adoption tax credits.

The federal adoption tax credit amount is adjusted yearly, with its maximum allowance growing annually with rising costs of living. For the 2025 tax year, the maximum amount available for the adoption tax credit is $17,280 per child. This means that for taxes filed in 2025, a credit up to that amount, based on qualified adoption expenses, can be applied toward any taxes owed. If the full amount of the adoption credit for taxes exceeds the amount owed, the excess balance can be carried over for up to five years.

Is the Adoption Tax Credit refundable?

No, the federal adoption tax credit is not refundable. It must be used toward tax liability for the tax year in question. If your adoption tax credit is more than of your liability, the remaining credit balance can be applied to future liability for up to five years.

Are there income restrictions for the Adoption Tax Credit?

Yes, there is a maximum income limitation adoptive families cannot exceed in order to be eligible for the federal adoption tax credit. This limitation is based on a household's modified adjusted gross income (MAGI). For adoptive families whose MAGI falls beneath or equal to $259,190, they are eligible for up to the total adoption credit amount. For families who exceed this income but fall beneath $299,190, they are eligible for a partial adoption tax credit. Any families equal to or exceeding a MAGI of $299,190 are ineligible to receive the credit. For more information on federal adoption tax credit qualifications, restrictions, and limitations, please consult your trusted tax professional.

In order to take advantage of the maximum adoption tax credit allowance, it's crucial for adoptive families to save all receipts, invoices, and documentation for all adoption-related expenses. Each qualified adoption expense will need to be listed on the appropriate tax form in order to benefit from the tax credit.

In order to claim the federal adoption tax credit, prospective parents need to complete Form 8839 to determine the amount that can be credited toward taxes owed. Once completed, this should be attached to the appropriate tax return form. For more about how to calculate and apply for the adoption tax credit, please consult a trusted tax professional.

What documentation is required to claim the Adoption Tax Credit?

In order to claim the adoption tax credit, adoptive parents need to have the following documentation available:

• All receipts, invoices, and other expenses related to your adoption
• Required tax forms (form 8839) listing out qualifying adoption expenses
• A social security number for your adopted newborn*
• Adoption home study documentation
• Adoption finalization forms

*It can take up to six months or more after finalization before a social security number is received for an adopted child. In the event that adoptive families file for the federal adoption tax credit prior to receiving one, they can consult with a tax professional about applying for a temporary adoption tax ID number.

Can I claim the Adoption Tax Credit for a disrupted adoption?

Yes, adoptive parents can claim the adoption tax credit for a disrupted adoption or one that hasn't been finalized yet. In many cases, adoptive parents may have to wait a certain amount of time after the disruption before claiming the credit. For adoptive parents who experienced more than one disruption in any given year, the total maximum allowance applies for both or all disrupted adoptions, regardless of how many have occurred.

For families who experience a disruption and then a successful domestic adoption placement, claiming the adoption tax credit for the disruption can interfere with the credit for the placement. Any credit received for the disruption will likely be subtracted from what would be received on the placement.

Does my adoption have to be finalized before claiming the Adoption Tax Credit?

If an adoption hasn't been finalized yet, families and prospective parents can claim the adoption tax credit for the following year. For the current year, families and parents may be able to claim some qualified adoption expenses made in the previous year.

Yes, you can still claim the federal adoption tax credit, but there are some important points and caveats to consider.

Employer adoption reimbursements are tax deductible. When it comes time to file your taxes, you can exclude employer reimbursements from your reported income.

Only non-reimbursed adoption-related expenses are eligible. All qualified adoption expenses incurred that were not reimbursed through an employer can be used to claim the adoption tax credit. Please be aware of what expenses can be claimed, so as not to claim credit and deduction for the same costs.

Simply put, the adoption tax credit is claimed per child, per tax year. If multiple children are adopted in the same year, adoptive parents and families can claim the credit per child adopted in the same year. If parents already used the adoption tax credit on their first child and choose to adopt again, even if it's a year or more later, the credit can also be claimed again for the most recent child. Note that more than one required form 8839 may be needed in this case.

Between adoption requirements and the often high costs of adoption throughout the process, the road to welcoming a newborn into your life can seem challenging. However, through incentives like the federal adoption tax credit, help is available. For more information regarding the adoption tax credit, please contact your trusted tax professional. For all other inquiries into the adoption process, get in touch with us. With over 25 years of experience, we've united thousands of families and made dreams come true.