Hundreds of thousands of families in the United States could soon qualify for refunds of up to $5,000 under the Adoption Tax Credit, as announced by Frank Bisignano, the chief of the Internal Revenue Service (IRS). This policy change, effective for tax year 2025, allows amounts from the Adoption Tax Credit to carry forward from previous years, offering significant financial assistance for those who have adopted children.
Bisignano revealed this initiative on Wednesday, emphasizing the IRS’s commitment to implement the policy without disrupting the current tax filing season. “The IRS is implementing this policy as expeditiously as possible,” he stated, highlighting the urgency for families who may benefit from this financial support.
Potential Impact on Families
The announcement is expected to benefit a substantial number of families, as estimates suggest that between 100,000 and 150,000 children are adopted annually in the United States. Tax refunds typically arise when individuals pay more in federal taxes than they owe, often through payroll withholding or qualifying for refundable credits. With the Adoption Tax Credit, eligible families could receive a refund of up to $5,000 per qualifying child.
Bisignano also noted that many taxpayers might still be entitled to significant refunds due to unclaimed credits or errors in their filings. He urged taxpayers to review their tax situations carefully, as misinformation regarding new stimulus payments has circulated online. The IRS clarified that no new federal stimulus program has been approved; however, existing credits could still yield substantial refunds for qualifying individuals.
Understanding the Adoption Tax Credit
Currently, the maximum Adoption Tax Credit stands at $17,280, with up to $5,000 being refundable. This credit is available to those who have adopted or begun the adoption process for children under the age of 18 and have incurred qualifying adoption expenses. According to Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, there are specific income limits and eligible costs that taxpayers should be aware of. These include adoption fees, legal fees, and travel expenses that arise during the adoption process.
“Adoption can be incredibly expensive, and receiving an additional refund amount can help ease these costs,” Beene explained, highlighting the financial strain many families face.
Kevin Thompson, CEO of 9i Capital Group, shared insights on the limitations of the Adoption Tax Credit. “Its structure limits how helpful it actually is for many families,” he noted. Thompson pointed out that adoption costs are often paid upfront through agency fees and legal expenses, while the tax relief occurs later when filing taxes. This timing mismatch can create financial pressure for families during the adoption process.
As the IRS prepares to release more information regarding the Adoption Tax Credit refunds, tax professionals are encouraging Americans to examine their tax filings. Those who may have missed stimulus payments during the pandemic or who are low- to moderate-income workers that did not claim refundable credits should take particular note.
Individuals who have not filed tax returns for previous years or relied on unverified online advice may also be eligible for refunds they were previously unaware of. As families navigate this complex landscape, the potential for financial relief through the IRS’s renewed focus on the Adoption Tax Credit could provide much-needed support for those who have opened their hearts and homes to adopted children.
