By Josh Kroll
I’m excited to share an important update that we at Families Rising have been working toward for years: starting with the 2025 tax year, the Federal Adoption Tax Credit will be refundable up to $5,000, and families will be able to use the remaining credit to offset their tax liability.
Amid the rising cost of living, this bipartisan policy allows families with little or no federal tax liability to receive the credit, making it more accessible to a broader range of caregivers. This is a major step forward for families adopting from foster care, as well as grandparents and relative caregivers who adopt but might not otherwise benefit from a nonrefundable credit.
What we know so far
The maximum adoption tax credit for 2025 is $17,280. If a family finalizes an adoption in 2025, they should be able to use $5,000 of the adoption tax credit even if they have no tax liability, and more if they can use it to offset their tax liability. The credit, both refundable and nonrefundable, will typically lead to a refund or increase the size of their refund.
Why it matters
With more than 77,000 youth in foster care awaiting adoption, making the credit refundable offers financial support to more families and helps open the door to permanency.
Previously, the adoption tax credit was nonrefundable, meaning it could only help families who had tax liability. That left out many of the very families who could benefit most – those with lower incomes or fixed incomes, like grandparents, kinship caregivers, and families adopting from foster care. A refundable credit means that, whether you owe a large federal tax bill or none at all, you’ll receive financial support.
It also helps families access critical post-adoption services that are essential for long-term well-being. Support such as mental health care and assistance navigating school systems is especially important for families adopting children who have experienced trauma, loss, and instability – experiences common in adoptions from foster and kinship care. Unfortunately, access to these resources is often limited by cost. The refundable portion of the tax credit can help bridge that gap, giving families real dollars to invest in the care their children need to thrive.
How it will work
A family adopting in 2025 with an adoption subsidy will be eligible to claim the full $17,280 regardless of expenses paid for the adoption. Let’s say their total tax liability is $4,000, and they are claiming the Child Tax Credit for their only child (under age 17). With the expected split under the new tax bill, $300 of the Child Tax Credit will reduce their tax bill directly, and the remaining $3,700 will be offset by the nonrefundable portion of the Adoption Tax Credit. If they have no other credits or taxes, their total tax is $0.
If the family had $4,500 in federal income tax withheld throughout the year, that amount, combined with the $1,900 refundable Child Tax Credit and $5,000 refundable Adoption Tax Credit, would result in an $11,400 IRS refund.
What’s next
This win is the result of more than a decade of advocacy by families, professionals, and organizations across the country. At Families Rising, we’ll continue pushing for policies that give families the tools they deserve to succeed.
There are a few open questions – like how this change will apply to carryforward credits from previous years – but we’ll continue to share guidance as it becomes available. In the meantime, we have extensive information on our web site about filing the adoption tax credit, including a free recorded webinar. Families can contact Josh Kroll directly at 651-644-3036 x115 or [email protected] for any questions or assistance they need.