Adoption Tax Credit Becomes Fully Refundable in 2025: What That Means for Family Budgets

This legislation, the Adoption Tax Credit Refundability Act of 2025, makes a significant change to how families can access financial help when adopting a child. Starting with tax years after December 31, 2024, the existing federal adoption tax credit will become fully refundable. This is a game-changer because previously, the credit was non-refundable, meaning you could only use it to reduce your tax bill down to zero; you couldn’t get the remaining amount back as a refund. Now, if you qualify for the credit but don’t owe enough in taxes to use the whole thing, the remaining balance comes back to you as a check from the IRS.

The Refundability Upgrade: Cash in Hand

For most people, the difference between a refundable and non-refundable credit is the difference between a nice discount and actual money in your pocket. Adoption expenses—which include everything from attorney fees and court costs to travel—can easily run into the tens of thousands of dollars. Under the old system, a family with a high adoption expense but a relatively low tax bill (maybe they’re teachers, small business owners, or just starting out) might only be able to claim a fraction of the full credit. Now, with the credit moving from its old spot in Section 23 to the new, refundable Section 36C of the tax code, lower- and middle-income families can realize the full financial benefit, greatly reducing the cost barrier to adoption. If you had any unused credit rolling over from 2024, the bill makes sure that amount gets added right into your first refundable claim in 2025, so nothing is lost in the transition.

Cutting the Red Tape for Verification

The bill also addresses the paperwork side of things, which is often the biggest headache. To claim the credit, families need to document their qualified adoption expenses. This legislation requires the Treasury Department to create a standardized third-party affidavit form for verifying these expenses. Think of this as the IRS trying to streamline the proof process. Instead of potentially having to navigate various complex documents from lawyers or adoption agencies, a standardized form should make it clearer and hopefully quicker for families to prove their expenses, whether it’s a standard adoption or one involving a child with special needs. Mandating this standardized form (Section 2) suggests an effort to make the verification process smoother and less prone to errors for both the taxpayer and the IRS.