Adoption Tax Credit Becomes Fully Refundable in 2026: What It Means for Family Finances

The Adoption Tax Credit Refundability Act of 2025 is making a big, but simple, change to how families get financial help for adopting a child. Starting with the 2026 tax year, the existing federal adoption tax credit will become fully refundable. This is a massive shift from its current status as a non-refundable credit, and it’s the kind of tax change that can genuinely move the needle for middle-class families.

The Upgrade: From Tax Break to Direct Refund

To understand why this is a big deal, you need to know the difference between a refundable and a non-refundable tax credit. Right now, the adoption tax credit is non-refundable, meaning it can only reduce your tax bill down to zero. If you spend $15,000 on adoption expenses and earn a credit for it, but only owe $5,000 in taxes, you can only use $5,000 of that credit. The rest is often carried forward to future years, which is helpful but slow. The new law (Section 2) moves this credit to a new section of the tax code (Section 36C), making it fully refundable.

What does “fully refundable” mean in real life? It means that if you owe $5,000 in taxes but earned a $15,000 credit, the government will now send you a check for the remaining $10,000. For families with moderate incomes or those who adopt children with special needs—who often qualify for the full credit regardless of expenses—this ensures they get the full financial benefit immediately, regardless of their tax liability. This change directly addresses a major hurdle for lower-income families who were often priced out of using the full value of the credit.

Keeping Your Carryover Credits Intact

Since this change doesn't kick in until tax years beginning after December 31, 2025, the bill includes a smart provision for continuity (Section 2). If you have any unused adoption credit amounts carried over from the old, non-refundable rules (from the 2025 tax year or earlier), that entire carryover balance will be added to your new, refundable credit in 2026. This means you won’t lose any credit you’ve already earned while waiting for the new rules to start.

Standardizing the Paperwork

The bill also addresses the administrative side of things by requiring the Treasury Department to create standardized affidavits—sworn statements—that third parties can use to verify a legal adoption (Section 36C(h)). This is a behind-the-scenes change, but it’s crucial. It standardizes the verification process, which should make claiming the credit less of a headache and hopefully speed up the processing time for families who are already navigating complex legal processes. They are specifically tasked with creating forms for both general adoptions and those involving children with special needs, aiming for clarity and consistency across the board.