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Adoption Tax Credit Update: IRS Reverses Course on Carryforward Refundability
The federal adoption tax credit continues to provide meaningful relief for families adopting children, and recent legislative changes have expanded these benefits. The H.R.1 Reconciliation Bill enhanced the federal adoption tax credit by making a portion of the credit refundable beginning in 2025, allowing eligible taxpayers to receive up to $5,000 ($5,120 for 2026) even if they have little or no federal income tax liability.
Earlier IRS guidance indicated that adoption credit carryforwards from prior years would not qualify for the refundable portion of the credit. This position affected taxpayers carrying forward unused credits from 2020 through 2024. During a March 2026 hearing, the IRS reversed course and announced that, for the 2025 tax year, adoption credit carryforwards from prior years may qualify as refundable up to $5,000 per qualifying child. The IRS has stated that additional administrative guidance will be issued to clarify how taxpayers may claim these amounts.
This policy shift could create refund opportunities for taxpayers who previously understood that unused adoption credits could only offset future income tax liability. Under the updated interpretation, taxpayers with carryforward balances may be able to receive a refundable amount, subject to applicable limits, even if their current-year tax liability is low.
Adoption tax rules in this area continue to evolve, and the ultimate impact will depend on forthcoming IRS guidance. Taxpayers with unused adoption credit carryforwards should continue to file their 2025 tax returns as normal while monitoring future IRS guidance for updated claim procedures and potential adjustments.
Given the potential for changes to both refundability and carryforward treatment, taxpayers should ensure their adoption credit records are accurately maintained and consider reviewing their situation with a tax advisor to fully understand how these updates may apply to them.
Sources:
https://heimerlaw.com/change-in-the-adoption-tax-credit/
Kiplinger Newsletter, May 21, 2026 edition.