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[Prefer to listen? You can find a podcast version of this article here: E253: How to Claim Your Tax Credits for Adoption Expenses]

Adoption can be one of the most meaningful experiences in life—but it's no secret that it can also come with significant costs. Fortunately, the IRS offers adoption tax benefits designed to offset some of these costs. If you’re planning to adopt or have recently completed an adoption, it’s worth understanding how to claim these valuable tax credits.

Let’s walk through the essentials of how the adoption tax credit works, who qualifies, which expenses count, and how to file.

What Is the Adoption Tax Credit?

The adoption tax credit was introduced as part of the Small Business and Job Protection Act of 1996 and is codified in IRC Section 23. Its original intent was to ease the financial barrier to adoption and encourage more families to pursue it. The credit provides relief by reimbursing qualified expenses incurred during the adoption process.

For 2024, the maximum adoption credit is $16,810 per child. This increases to $17,280 in 2025. You may also be able to exclude the same amount in employer-provided adoption benefits from your taxable income.

You can claim both the exclusion and the credit—but not for the same expenses.

Who Qualifies for the Adoption Credit?

To qualify, you must have adopted an "eligible child." This means:

• - The child is under 18, or
• - The child is physically or mentally incapable of self-care

Additionally:

• If you're married, you must file a joint return to claim the credit.
• If you're a registered domestic partner in a state that permits second-parent adoption, each partner may claim the credit for the expenses they individually paid.

There are income limits. In 2024, the credit begins to phase out for households with Modified Adjusted Gross Income (MAGI) above $252,150 and disappears completely at $292,150. For 2025, the phaseout range is $259,190 to $299,190.

Special Rules for Special Needs Adoptions

If the child is deemed "special needs" by a state agency, you may qualify for the full credit, regardless of whether you incurred any qualified expenses.

To be considered a special needs adoption:

1. The child must be a U.S. citizen or resident.
2. The state must determine that the child cannot return to their biological parents.
3. The state must determine that the child is unlikely to be adopted without financial assistance.

This designation is usually documented in the adoption paperwork.

In these cases, both the credit and exclusion can apply even if no expenses were paid out-of-pocket—a powerful benefit for families adopting through foster care or similar programs.

What Are Qualified Adoption Expenses?

Eligible expenses include:

• Adoption agency fees
• Attorney fees
• Court costs
• Travel expenses (including meals and lodging)
• Home study and related pre-adoption costs

Expenses must be directly related to the legal adoption of an eligible child. Importantly, you cannot claim expenses that:

• Were reimbursed by your employer (unless using the income exclusion)
• Were paid for adopting your spouse’s child
• Were for surrogacy arrangements
• Were covered by a federal, state, or local program
• Were used to claim another federal tax credit or deduction

Also, any expenses above the annual limit cannot be claimed and are lost.

When Can You Claim the Credit?

This depends on the type of adoption:

• Domestic Adoptions (U.S. citizen or resident):
• You can claim the credit in the year after the expense is paid (if before finalization)
• In the year of finalization, claim expenses from that year
• For expenses after finalization, claim in the year they are paid
• Special Needs Adoptions:
• Claim the credit only after the adoption is finalized
• Foreign Adoptions:
• Claim the credit only in the year the adoption is finalized
• This includes expenses paid in previous years

If the adoption fails, only domestic adoption expenses are eligible for the credit. Foreign and special needs adoptions must result in finalized adoptions to qualify.

Employer Adoption Assistance: Tax-Free Help

Many employers offer adoption assistance benefits. These are not taxable up to the annual limit, provided:

• The employer has a written qualified adoption assistance program
• The benefits are used for qualified expenses
• The payments are reported correctly on your W-2 (Box 12, Code T)

If you receive employer assistance, you must use those funds first to offset your adoption expenses. The remaining expenses—up to the annual limit—can then be used for the adoption credit.

Example:

Let’s say you incur $20,000 in adoption expenses. Your employer reimburses $8,000. You can exclude the $8,000 from income and claim a $12,000 credit for the remaining expenses.

Keep in mind: If you receive employer assistance before a foreign adoption is finalized, that money is taxable in the year you receive it. You can exclude it later—once the adoption is finalized.

One Credit Per Child, Not Per Year

The adoption credit is calculated per child, not per year. That means if you adopt multiple children, you can claim the full credit for each child.

However, you can spread the expenses—and the credit—over multiple years if needed. But once you’ve claimed the full allowable amount for a child, you can’t claim more in future years for that child.

If your tax liability is too low to use the full credit in one year, you can carry forward unused credit for up to five years.

How to Claim the Credit: Form 8839

To claim the credit, file **IRS Form 8839, Qualified Adoption Expenses**, with your tax return.

Form 8839 has three parts:

1. Part I – Information about the adopted child
2. Part II – Computation of the credit
3. Part III – Employer-provided adoption benefits

Make sure to complete Part III first, since employer assistance reduces the amount of qualified expenses available for the credit.

The IRS requires documentation of the adoption. For special needs adoptions, this usually includes adoption assistance agreements or other state-issued documentation indicating the child’s status.

Examples

Here are a few hypothetical examples of how the adoption credit works in different situations.

Example: Sarah and Mike

Sarah and Mike, a married couple, adopted a 4-year-old girl, Emma, from foster care. Emma is a U.S. citizen and was deemed special needs by their state. The adoption was finalized in 2024.

Their income is $135,700—well within the phaseout threshold. Even though their out-of-pocket expenses were minimal, they qualify for the full $16,810 credit because of Emma’s special needs status.

Their tax liability for the year was only $13,236, so the remaining $3,574 of the credit can be carried forward to future years.

Example: David and Alicia’s International Adoption

David and Alicia decided to adopt a child from South Korea. They began the process in 2022 and finalized the adoption in 2024. Over the course of the adoption, they incurred $34,720 in qualified expenses, including agency fees, legal costs, and travel.

Their employer offered a qualified adoption assistance program and reimbursed them for $16,810 of those expenses—the maximum allowed in 2024. That reimbursement was excluded from their income.

They were eligible to claim the remaining $17,910 as potential credit expenses, but the adoption credit is capped at $16,810 for 2024. This means:

• $16,810 was excluded from income (employer benefit)
• $16,810 was claimed as an adoption credit
• $1,100 of expenses exceeded the allowable limits and could not be used

Because David and Alicia had a tax liability of only $10,000 in 2024, they claimed that amount this year and carried forward the remaining $6,810 of unused credit to future tax years.

Example: Jordan and Taylor’s Domestic Adoption (Non-Special Needs)

Jordan and Taylor adopted a newborn through a private domestic agency. The child is a U.S. citizen and was not determined to have special needs by the state. The adoption was finalized on September 20, 2024.

Between 2023 and 2024, they paid a total of $18,000 in qualified adoption expenses, including legal fees, agency costs, and travel.

Their employer did not offer an adoption assistance program, so they were not eligible for any income exclusion.

Because this was a non-special needs domestic adoption, they were able to claim expenses in the year they were paid, even before the adoption was finalized. According to IRS rules, expenses paid before the year of finalization are claimed in the year after payment, while expenses paid in the year of finalization or later are claimed in the year paid.

Here’s how their claim breaks down:

• In 2023, they paid $5,000. They claim this amount on their 2024 tax return.
• In 2024, they paid $13,000. They claim this amount on their 2024 return as well.

Together, they claim $18,000 in qualified expenses on their 2024 tax return. However, the maximum adoption credit for 2024 is $16,810, so that is the most they can claim.

Their total tax liability for 2024 was $12,000. That means:

• They claim $12,000 of the credit in 2024
• The remaining $4,810 of the credit is carried forward to use in future tax years

This example demonstrates how the adoption credit applies in a non-special needs domestic case and how the timing of payments affects when the credit can be claimed.

Final Thoughts

Navigating the adoption process is complicated enough—don’t miss out on the financial support available through the tax code. Whether you're adopting domestically, internationally, or adopting a child with special needs, understanding the rules around the adoption tax credit and employer benefits can make a meaningful difference in managing costs.

If you’re unsure how the rules apply to your situation, it’s a good idea to consult a tax professional or financial advisor who can guide you through the process.