The “Big Beautiful Bill” recently signed into law dramatically enhances America’s adoption tax credit. The expanded credit sends a clarion message: our country is deeply committed to seeing kids grow up in families.
Recent CAFO research found that financial concerns are the number one reason families list for deciding not to adopt. The expansion of the credit helps address that barrier directly, boosting support for families that welcome children
This benefits not only children and families, but taxpayers, too. As I explained in a Wall Street Journal op-ed, “The Adoption Tax Credit Saves Money.” More than 75,000 children in the US foster system are waiting to be adopted. A NCFA recently reported, each successful adoption from foster care reduces public expenditures by between $65,000 and $127,000.
Most importantly, adoption leads to much better life outcomes for children who’d otherwise grow up without a family. The future facing a typical youth who ages out of care without adoption is statistically bleak — including significantly higher rates of incarceration, dependence on public assistance, and lower lifetime earnings. These challenges come at immense cost, both to each young person and to society.
Those who are welcomed into a permanent family do dramatically better than those who aren’t — from educational attainment and career to the simple reality of having a place to go home to for holidays. Studies show this to be the case even when taking into account the struggles that can linger from severe difficulty in childhood.
What’s new in the Adoption Tax Credit?
- Refundable credit of $5,000: Beginning this year, up to $5,000 of the total credit will be refundable. That means that families can receive a refund even if they owe no taxes.The rest of the credit remains nonrefundable — meaning it can be used only to reduce taxes owed — but the unused portions can be “carried forward” for up to five years.
- Indexed for inflation: Both the overall credit limit (currently $17,280) and the refundable portion will be adjusted annually to keep pace with rising costs. By indexing the credit to inflation, Congress ensures that the credit’s real-world value remains a strong, permanent support to families.
- Tribal recognition for special‑needs adoptions: The bill enables Indian tribal governments to classify a child as having “special needs,” enabling more adoptive families to qualify for the full credit.
How does the credit work?
Most costs a family pays out of pocket for adoption are considered “qualified adoption expenses.” These include things like adoption agency fees, attorney and court costs, home studies, travel, and other expenses directly related to an adoption.
The Adoption Tax Credit, in essence, pays you back for these expenditures by reducing your total tax bill by up to the maximum allowable, which is $17,280 in 2025.
Low- and middle-income families that have little or no income tax liability haven’t been able to receive this help in the past. But under the new provisions, families will be able to receive up to $5,000 as a tax “credit” not just a reduction in what they must pay.
If a family can’t claim all of the credit that they are due in a given year, they can carry it forward to reduce future tax liability for up to five years.
When a family adopts a child from within the US who is officially designated as having special needs, they may be eligible to claim the entire maximum credit, regardless of actual expenses paid. This “special needs” designation is determined by the state where the adoption is finalized, and it must be documented in an official subsidy agreement (sometimes called an “adoption assistance eligibility determination”). Each state has its own standards for what qualifies as special needs, so the criteria can vary, but generally includes much more than obvious physical or mental disabilities. Often, children for whom it is considered difficult to find a family will qualify for this designation. (More about adoption subsidies here.)
It’s important to note that international adoptions do not qualify for the “special needs” provision. In addition, adoption of stepchildren — though a beautiful expression of commitment and love — does not qualify for the adoption tax credit.
Eligibility for the tax credit is also affected by modified adjusted gross income (MAGI). For 2025, the credit begins phasing out for taxpayers with a MAGI above $259,190.
Through the adoption tax credit, America comes alongside families that welcome children through adoption, helping them carry a portion of the costs that come with raising a child.
-Jedd Medefind is the President of the Christian Alliance for Orphans.
To learn more, see the great primer and FAQs created by our friends at the National Council for Adoption.
If you’re interested in walking with others on this journey and learning more about the Adoption Tax Credit, join us at CAFO2025 in Houston, Texas Oct. 1-3 where we will have a special coaching table on, “Maximizing the Adoption Tax Credit”. Learn more and register here.
