Adopting a child is one of life’s most rewarding journeys—but also one of the most expensive. Legal fees, travel, court costs, and post-adoption services can add up quickly. Fortunately, there’s some good news on the tax front for 2025: the IRS has expanded the Adoption Tax Credit in meaningful ways to ease that financial burden.
If you’re navigating adoption—or advising clients who are—this guide breaks down how the new rules work, who qualifies, and how you can make the most of the credit this year.
The 2025 Adoption Tax Credit at a Glance
Let’s start with the headline: you can claim up to $17,280 per child in adoption-related expenses for the 2025 tax year. That’s not per return—it’s per child, making it a game-changer for families adopting siblings or multiple children.
But here’s the kicker: for the first time ever, up to $5,000 of the credit is refundable.
What does that mean? Even if you don’t owe any federal income taxes, you could still receive up to $5,000 as a direct refund from the IRS. That’s cash in hand—a major shift in accessibility for lower- and middle-income families.
Who Qualifies for the Adoption Credit?
Before you go counting the full $17,280, here are the key definitions to determine eligibility:
👶 Eligible Child
- Any child under age 18
- Or an individual physically or mentally incapable of self-care
💛 Special Needs Child
- Special needs can include:
- Age (typically older children)
- Disability
- Minority status
- Sibling groups
Starting in 2025, state governments and federally recognized tribal authorities can officially determine whether a child qualifies as special needs—streamlining the process for many families.
✅ Bonus: If your adopted child is determined to have special needs, you can claim the full credit amount, even if you didn’t incur eligible expenses.
💸 Qualified Adoption Expenses
These include:
- Adoption agency fees
- Court costs
- Attorney fees
- Travel (including lodging and meals while away from home)
Not covered:
- Expenses for adopting your spouse’s child
- Surrogacy arrangements
Refundable vs. Non-Refundable Credit: What’s the Difference?
Let’s break this down with a quick metaphor.
Imagine the Adoption Credit as a pool of $17,280. The first $5,000 is refundable—like a prepaid debit card you can use regardless of your tax bill. The remaining $12,280 is non-refundable—you can use it to reduce your tax liability, but you won’t get a check for it if your liability is lower than the credit.
Here’s the good news: the non-refundable portion can be carried forward for up to five years.
So even if you can’t use it all in one tax year, you won’t lose it.
Income Limits: Is There a Phase-Out?
Yes. The credit begins to phase out when your Modified Adjusted Gross Income (MAGI) hits $259,190 and disappears completely at $299,190.
These figures are inflation-adjusted annually, so they may vary slightly in future years.
📊 Tax Strategy Tip from JS Morlu: If your income is nearing the upper threshold, we recommend strategic timing of deductions and deferrals to stay within range and maximize your eligibility.
Special Situations: Adoption Isn’t Always a Straight Line
❌ What if the adoption falls through?
If you’re pursuing a domestic adoption that doesn’t go through, you can still claim qualified expenses. This applies even if the child was never placed with you.
🌍 International Adoptions
For foreign adoptions, you must finalize the adoption before claiming any credit. Expenses are only eligible in the year the adoption is completed—not when paid.
🔁 Readoptions
Sometimes international adoptions must be finalized a second time in your home state. These readoption expenses also qualify for the credit.
🧾 Employer Reimbursements
Some employers offer adoption assistance benefits—but they count toward your credit limit. So if your employer reimburses $4,000 in expenses, you can only claim $13,280 on your return.
Don’t Forget the Paperwork
To claim the credit, you’ll need a Taxpayer Identification Number (TIN) for each adopted child. This can be:
- A Social Security Number (SSN)
- An Adoption Taxpayer Identification Number (ATIN) for children without SSNs yet
💡 Pro Tip: Start this process early. The IRS won’t process your claim without it, and delays can push your refund back by weeks.
Married? File Jointly
Generally, only married couples who file jointly can claim the adoption credit. The only exceptions are for couples who are legally separated or living apart for more than six months.
Financial Planning Around the Credit
At JS Morlu, we view the adoption credit as more than a tax perk—it’s a strategic financial planning opportunity.
Here’s how we help clients optimize it:
- Bundling adoption costs across multiple years for larger impact
- Timing large expenses to coincide with high-income years (before phaseout)
- Integrating the credit with Child Tax Credit, Dependent Care Credit, and even medical deductions when applicable
It’s not just about what you get—it’s about how you orchestrate your finances to get the most from it.
Other Tax Benefits for Adoptive Families
In addition to the adoption credit, keep these in your toolbox:
🧾 Tax-Free Employer Assistance
Employers can reimburse qualified adoption expenses tax-free—up to the same limits as the credit.
👶 Child Tax Credit
You may be eligible for up to $2,000 per child (some portion refundable) depending on income.
💼 Child and Dependent Care Credit
If you pay for child care while working or job-hunting, you may qualify for a credit of up to 35% of $3,000–$6,000 in expenses.
Final Thoughts: Build Your Family, Strategically
The expansion of the Adoption Credit in 2025 is a huge win for families—but like all things tax-related, it’s not one-size-fits-all.
That’s where JS Morlu comes in.
We help clients:
- Understand their eligibility
- Maximize their refund
- Align adoption expenses with long-term financial goals
👨👩👧 Whether you’re adopting your first child or expanding your growing family, smart tax planning makes the journey smoother and more affordable.
Ready to Maximize Your Adoption Credit?
🎯 Let’s talk strategy. Schedule your free consultation with a JS Morlu tax expert today and take the guesswork out of adoption-related tax planning.