Adopting a child is a beautiful and life-changing journey, but it can also bring significant financial and emotional challenges. Fortunately, the U.S. federal government recognizes these hurdles and offers the Federal Adoption Tax Credit, designed to help ease the financial burden on adoptive families. If you’re planning to adopt or are already navigating the process, understanding this credit can save you thousands of dollars and make your dream of growing your family more affordable.
In this comprehensive guide, we break down everything you need to know about the federal adoption tax credit — from who qualifies to how much you can claim, and the special considerations for adopting children with special needs.
What Is the Federal Adoption Tax Credit?
The federal adoption tax credit is a non-refundable tax credit available to taxpayers who incur qualified expenses during the adoption process. This means it can reduce your tax bill dollar-for-dollar but won’t result in a tax refund if you owe no taxes.
The credit covers various adoption-related costs such as legal fees, court costs, travel expenses, and other necessary fees. It’s a vital financial relief that recognizes adoption expenses can quickly add up.
Who Qualifies for the Credit?
To claim the credit, you must have incurred qualified adoption expenses while adopting an eligible child.
Who is an Eligible Child?
- A child under 18 years old, or
- Any age if physically or mentally incapable of self-care.
The child cannot be:
- A spouse’s child, or
- A child born through surrogacy arrangements.
Special Needs Adoptions
If you’re adopting a child with special needs, the credit rules are more favorable. You qualify for the maximum credit amount regardless of whether you incurred adoption expenses.
The IRS defines a special needs child as one who:
- Cannot or should not return to their birth parents, and
- Is unlikely to be adopted without assistance.
This recognition is crucial since special needs adoptions often involve unique challenges.
How Much Is the Credit?
For the 2025 tax year, the maximum federal adoption tax credit is $17,280, up from $16,810 in 2024.
However, there’s a phase-out based on your Modified Adjusted Gross Income (MAGI):
- The credit starts to phase out at a MAGI of $259,190, and
- It phases out completely at $299,190.
These income limits apply equally across all filing statuses and adjust annually for inflation.
Important: The credit is non-refundable, so if your tax liability is zero or very low, you may not receive the full benefit immediately. But, the IRS allows you to carry over any unused credit for up to five years, so you don’t lose out.
What Are Qualified Adoption Expenses?
Qualified expenses include:
- Adoption fees,
- Court costs,
- Attorney fees,
- Travel expenses related to the adoption.
Note that for international adoptions, the credit is only available in the year the adoption becomes final. If the adoption doesn’t finalize, you cannot claim the credit.
Documentation & Substantiation
You don’t need to submit proof with your tax return, but it’s vital to keep documentation such as:
- Adoption decrees,
- Placement agreements,
- Home study reports.
These documents may be requested by the IRS later to verify your claim.
Employer Adoption Assistance Programs
Many employers offer adoption assistance benefits. These can exclude up to the credit limit ($17,280 for 2025) from your taxable income.
Be cautious: you cannot claim both the credit and exclude the same adoption expenses from your income — it must be one or the other.
Child’s Tax Identification Number
To claim the credit, you’ll need to include the adoptive child’s Taxpayer Identification Number (usually their Social Security Number) on your tax return.
If the child has been placed with you by an authorized agency but does not yet have an SSN, you may apply for a temporary Adoption Taxpayer Identification Number (ATIN).
The True Cost of Adoption and How to Pay for It
Adoption can be expensive, with costs varying widely depending on the type:
- Foster Care Adoption: Usually the least costly, averaging under $2,800.
- Independent Adoption: Ranges from $20,000 to $45,000, including home studies and birth mother’s medical bills (which are not eligible for the tax credit).
- International Adoption: Can range from $35,000 to $70,000 or more, due to country-specific fees and travel expenses.
Financing Options to Consider
- Loans: Home equity loans can provide affordable terms (note: interest is not deductible).
- Adoption Grants: Non-repayable funds awarded by various organizations; search online to find opportunities.
- State Subsidies: Many states offer financial assistance — check resources like Families Rising for details.
- Crowdfunding: Platforms like GoFundMe can help raise funds through community support.
- Employer Assistance: Take advantage of employer adoption benefits if available.
- Family Support: Some families receive financial help from relatives such as grandparents.
Why This Matters to You
Understanding and utilizing the federal adoption tax credit and other financial resources can transform the adoption experience. It makes building your family more affordable and less stressful, allowing you to focus on what truly matters: welcoming a child into your home.
For prospective adoptive parents, knowing the eligibility requirements, documentation needed, and ways to finance adoption is essential for planning a smooth journey.
Need Help? We’re Here for You
Navigating adoption finances can be complicated, but you don’t have to do it alone. Our office specializes in guiding families through the adoption tax credit and related financial planning. Contact us today for personalized assistance and let us help you make your adoption dream a reality.
