2025 Adoption Tax Credit - YouTube video text script

Hello and welcome to today's webinar 2025 Adoption Tax Credit. I see it's the top of the hour. We're glad you've joined us today. My name is David Higgins. I'm a Stakeholder Liaison with the Internal Revenue Service. I will be your moderator for today's webinar, which is slated for approximately 60 minutes. This webinar offers one IRS Continuing Education, CE, credit. Participants earn one IRS CE credit and a related Certificate of Completion by attending the live broadcast of the webinar for at least 50 minutes after the top of the hour and answering at least three poll questions during the live broadcast. The polling question example will test your pop-up blocker and that will count as an attendance check towards the polling question response requirement.

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Okay, we're going to stop the polling now and let's see how the majority of you answered. I see the majority of you chose letter A, 86%, fantastic. For those of you that selected B or C, I encourage you to visit irs.gov, enter the keyword Stakeholder Liaison in the search bar, you'll see a link for Stakeholder Liaison local contacts that should take you to our page. You can learn more about our role as a collaborative outreach champion and how to reach your Stakeholder Liaison. We hope you received the polling question, were able to submit your answer, and if not, it's now time to check-up your pop-up blocker to make sure you have it turned off.

Now that we've concluded our administrative items, we can move along with our session. Today's webinar is on the 2025 Adoption Tax Credit. The webinar is scheduled for approximately 60 minutes from the top of the hour. Before you meet today's presenters, we are pleased to have opening remarks from Ozlem Aydin. Ozlem started her career at the IRS 20 years ago as a Revenue Officer. She spent a decade in services enforcement, including serving as a Supervisory Revenue Officer before transitioning to the Human Capital Office, HCO, where she worked across multiple functional areas. In 2019, Ozlem joined Communications and Liaison as a Senior Advisor to the Office of Communications.

She subsequently held various assignments in addition to supporting and leading service-wide initiatives and enterprise projects while on assignment in the Strategy and Transformation Office. She now serves as the Supervisor for the Tax Outreach, Partnerships and Education, TOPE, Office where she and her team focus on collaboration, stakeholder engagement, and modernizing outreach efforts to support effective tax administration. Ozlem, the floor is yours.

Thank you so much, David. Good afternoon everyone. My name is Ozlem Aydin and, as David mentioned, I am the Supervisor of the Tax, Outreach, Partnerships and Education Group, commonly referred to as TOPE, at the Internal Revenue Service. The TOPE team focuses on building and strengthening relationships beyond the traditional tax communities. We work with a wide range of organizations and associations that may not regularly engage with the IRS, with a particular emphasis on emerging topics and new legislation and on sharing timely information about tax law. Today we are pleased to connect with you to present the Adoption Tax Credit Webinar. We appreciate your participation and hope you find the presentation informative and valuable. Thank you for joining us. David, back to you.

And thank you Ozlem for that. Welcome. Now let me introduce today's speakers. We're joined by Priscilla Moore and Natalia Thaniel.

Priscilla is a bilingual Public Affairs Specialist with Tax, Outreach, Partnerships and Education. She specializes in partnering with national organizations that can benefit from tax information, especially for Spanish speaking communities and outside of traditional tax communities. She has been with the Internal Revenue Service since 2007. Priscilla began her career with the Internal Revenue Services as Data Transcriber Representative.

Soon after, she joined the Audit Department as an examiner in which she learned a wide range of the Department's laws, principles and procedures in depth. She was later able to assist constituents by becoming a case advocate with the Taxpayer Advocate Service. As a senior advocate and analyst, she assisted with taxpayers in technical and procedural cases covering issues encountered in the Task office, while concentrating on those with the most complicated or specialized factors. Priscilla has acquired basic knowledge of accounting and knowledge of examination techniques, the interrelationships between federal and state laws, and general and geographic business practices.

As a Public Affairs Specialist, Natalia is part of the Tax Outreach and Partnership Education Branch of the IRS. Natalia is a former US Army broadcaster and school teacher. She has worked for the Department of Defense, the Department of the Army, and Department of Veterans Affairs. Natalia brings a fresh perspective to the IRS and her strong background in education and communication is instrumental in effectively conveying essential tax information to non-traditional tax communities.

And with that, I'm going to turn it over to Priscilla to begin the presentation. Priscilla, the floor is yours.

Awesome. Thank you so much David. And welcome everybody and thank you so much for joining today's IRS National Webinar about the Adoption Tax Credit I am so happy you guys are here and I am so happy to be able to be one of the presenters. So whether you are a tax professional, a counselor, social worker or parent thinking about adoption, we're happy you're here to learn how this credit can help you reduce the financial cost of adoptions. So today we'll explain what's new for 2025, who qualifies for the credit, and how the new refundable portions work under the One Big Beautiful Act which became law on July 4th of 2025.

Now before we begin, review what you will learn in today's session. So by the end of this presentation, you will be able to identify who qualifies for the adoption credit and which expenses count. You will be able to describe how the refundable and non-refundable credit amount works. You'll be able to recognize when to claim based on rules for special needs children and foreign adoption. And lastly, you'll be able to understand what records and documents you should keep to help calculate the credit when you file your income tax return.

Now let's go ahead and start with what changed this year. Beginning in 2025, up to $5,000 of the adoption credit can now be refunded to taxpayers. The amount of the refundable credit portion is determined separately for each eligible child. That's a big help for families who may not owe much tax. Also, tribal governments now have the same authority as states to decide whether an adoption is considered special needs and that means that the state government and Indian tribal government determinations of special needs are both recognized for purposes of the adoption credit. Also, the maximum credit or exclusion rose to $17,280 per child. That's the total of the non-refundable and refundable portion. This amount begins to phase out if you have modified adjusted gross income in excess of $259,190 and it's completely phased out for modified adjusted gross income of $299,190 or more.

Now let's go ahead and jump to the purpose of the Form 8839. So, what does this form help us with? So there's two things that this figures out. So first, how much adoption credit you could claim and second, how much employer adoption benefits you can exclude from the income. So you can use both the credit and the exclusion but not for the same expenses. In other words, you cannot double dip.

So let's talk a little about the purpose of the Form 8839. So, this form helps you figure your adoption credit and any employer provided adoption benefits you can exclude from your income. So, you can’t claim both the exclusion and the credit for expenses of adopting an eligible child. For example, depending on the cost of the adoption, you may be able to exclude up to $17,280 from your income, you may also be able to claim a total refundable and a non-refundable adoption credit for up to $17,280, but you cannot claim both the credit and the exclusion on the same expense.

So for the adoption credit on the Form 8839 Part 2 to figure out the non-refundable adoption credit you can take on Schedule 3 with the Form 1040, Line 6(c) and the refundable adoption credit you can take on Form 1040, Line 30, you may be able to take this credit in 2025 if any of the following statements is true. So first you must have paid qualified adoption expenses in connection with the adoption of an eligible US child and that's including any expenses paid in connection with adopting an eligible US child with special needs and that's in A, 2024 and the adoption wasn't final at the end of 2024; or B, 2025 and the adoption became final before 2025.

Also, if you adopted a US eligible child with special needs and the adoption became final in 2025, in this case you may be able to take the credit even if you didn't pay any qualified adoption expenses. Number three, you paid qualified adoption expenses in connection with the adoption of an eligible foreign child in A, 2025 or prior years and the adoption became final in 2025; or B, 2025 and the adoption became final before 2025. And number four if you have a carry forward of any adoption credit from 2024. Now be careful and caution, the refundable portion of your adoption credit doesn't include any amount of the carry forward credit from 2024. So, income exclusion for the employer provided adoption benefits, you use the Form 8839, Part 3 and this is to figure out the employer provided adoption benefit that you can exclude from your income on the Form 1040, 1040-SR or 1040-NR, Line 1(f) as in Frank.

You may be able to exclude these benefits from income if your employer had a handwritten qualification adoption assistance program and any of the following statements are true. The first one is if you receive your employer provided adoption benefits in 2025; however, special rules apply for benefits received in connection with the adoption of an eligible foreign child. The second would be you adopted an eligible US child with special needs and the adoption became final in 2025 and the last one would be if you received employer provided adoption benefits in connection with the adoption of an eligible foreign child in A, 2025 or prior years and the adoption became final in 2025 or in 2025 and the adoption became final in 2025 -- before 2025, sorry.

So, for purposes of calculating the adoption credit, don't include expenses reimbursed by an employer under a written qualified adoption assistance program. For this reason, you must complete the Form 8839, Part 3 before you can figure the credit, if there's any available. So be careful and caution, you cannot exclude employer provided adoption benefits if your employer is an S corporation in which you own more than 2% of the stock or stock with more than 2% of the voting power. And now that the income limit on the adoption credit or exclusion is based on modified adjusted gross income for 2025, use a table that will be included on IRS.gov you're able to find it there on the adoption credit and it'll give you the income limits as well.

Now let's go ahead and jump on who qualifies as a child. So, to qualify, the adopted child must be under the age of 18 and unable to claim and care for themselves due to physical or mental condition. Also, if it's a special needs adoption, a state or Indian tribal government must determine whether the child can't be put without assistance and for foreign adoption you can't claim the credit until the adoption is final. So how do we define what is an eligible child?

So, any child under the age of 18, if the child turned 18 during the year, the child is eligible for the part of the year they were under the age of 18. Also, any disabled individual physically or mentally unable to take care of themselves. Now for achild with special needs, if you adopt a US child with special needs, you may be able to exclude up to $17,280 and claim a credit which is a total of the refundable and non-refundable portion for the additional expenses up to $17,280 minus any qualified adoption expenses claimed for the same child in a prior year.

The exclusion may be available even if you or your employer didn't pay any qualifying adoption expenses, provided the employer has a written qualified adoption assistance program. So, beginning in 2025, the Indian Tribal governments now have parties for special needs adoption determinations. This means that the state government and Indian tribal government determinations of special needs are both recognized for purposes of the adoption tax credit. So, for a foreign child, if the child is foreign, you can't take the adoption credit or exclusion unless the adoption becomes final a child with a foreign child, if they were not citizens or residents of the United States, and that's including US territories at the time that the adoption effort began.

So, let's go ahead and take a pause here and let's go ahead and it's time for a polling question. How about that, David?

Sure. Audience, Time for our first polling question and here we go. Which of the following does not qualify as an eligible adopted child? A US citizen or resident under age 18, a child with special needs as determined by state agency, a foreign child whose adoption became final, a stepchild who is 25 years old and not legally adopted. Take a moment to click the radio button A, B, C or D that answers the question. If you do not receive the polling question, please enter only the letters A, B, C or D that corresponds with your response in the Ask Question text box. Your response is time stamped.

Audience, Please remember you need to answer at least three polling questions and participate in the live broadcast from the official start time for at least 50 minutes to earn one IRS CE credit. The polling question example we did at the beginning of this presentation will count towards this requirement. And I'll give you a few more seconds to make your selection or submit your answer in the Ask Question feature.

Okay, we're going to stop the polling now and let's share the correct answer on the next slide. And the correct response is D, A stepchild who is 25 years old and not legally adopted. So that's, that's an excellent response rate, folks, 96% of you got that. You're doing great then, Priscilla. I'll let you continue.

Thanks, David. So, generally, you must file jointly if you are married to claim the credit or exclusion. But if you lived apart from your spouse for the last six months and meet the support test, you may qualify separately. So qualified expenses for unsuccessful domestic adoptions can still qualify for the credit. And now special need adoptions provided by Indian tribal governments qualify for a full credit even though if no expenses were paid.

So let's talk a little bit about the background on who can take the adoption credit or exclude employer provided adoption benefits. So, you may be able to take the credit or exclusion if all three of the following statements are true. So, if your filing status is single, head of the household, qualifying surviving spouse or married, filing jointly; generally, if you are married, you must file a joint return to take the credit or exclusion. However, if you are married and aren't filing jointly, you may be able to take the credit or exclusion on your own return if you are considered unmarried because you are legally separated or living apart from your spouse and you meet a certain other requirement.

So for married persons that are not filing jointly, you may be able to take the credit or exclusion of all of the following apply: if you lived apart from your spouse during the last six months of 2025, if the eligible child lived in your home for more than half of the year 2025, if you provided over half of the cost of keeping of your home and, additionally, a person who is filing separately may claim an adoption credit carry-forward from a prior year or years, provided that if the person was married in the year in which the qualified adoption expenses first became allowable for the credit, the person filed a joint return for that year.

Okay, now we're going to go ahead and discuss the qualified adoption expenses, which include adoption agency fees, attorney or court costs, travel costs like meals and lodging and re-adoption costs for foreign adoptions. Expenses do not include those reimbursed by your employer, surrogate arrangements, adopting a child's spouse or costs paid by government programs. In short, reasonable and necessary costs directly related to the legal adoption qualify. So, for qualified adoption expenses a qualified adoption expense are reasonable and necessary expenses directly related and for the principal purpose of the legal adoption of an eligible child.

So for the qualified adoption expenses they include the adoption fees, attorney fees, court costs, travel expenses while away from home, and re-adoption expenses relating to the adoption of a foreign child and for qualified adoption expenses that do not include -- they do not qualify, which would be for which you receive funds under any state, local or federal program that violate state or federal law for carrying out a surrogate parenting arrangement, for the adoption of a spouse child, for a reimbursement by your employer or otherwise, or allowed as a credit or deduction under any other provision of federal tax law.

Now, David, I think it's time for another poll question.

Sure is. Audience here's our second polling question. Which of the following is excluded from qualified adoption expenses? A, adoption agency fees; B, travel, meals, lodging while away from home; surrogate costs; re-adoption costs for foreign adoptions. And once again, click the radio button that best answers the question or enter the letter A, B, C or D that corresponds with your response in the Ask Question text box and your response will be time stamped.

Okay, we're going to stop the polling now and let's share the correct answer on the next slide. The correct answer is C, surrogate costs. So, let's see how you did with this question. Excellent, 93%, I see that great majority of you responded correctly. Very good correct response rate. Back to you, Priscilla.

Great. Thank you, David. Now continuing on, so if your employer has a written qualified adoption assistance program, you can exclude up to $17,280 per child for income and you'll see these benefits on your W2, Box 12 with a Code T, as in Tom. Remember, for foreign adoptions, you can exclude the benefits only after the adoption is final. And you must still complete Part 3 of Form 8839 even if you do not receive any benefits and that's to confirm eligibility. Now, so employer provided adoption benefits -- in most cases, these employer-provided adoption benefits are amounts your employer paid directly to either you or a third-party for qualified adoption expenses under a qualified adoption assistance program.

A qualified adoption assistance program is a separate written plan set up by an employer to provide an adoption assistance to its employees. So, for more information on this, you can absolutely go to publication 15-B and that will give you a whole bunch of more information. So for an employer provided adoption benefits, you should be shown on Box 12 of your Form W2 with the Code T, your salary may be reduced to pay these benefits. You may also be able to exclude amount not shown on the Box 12 of your Form W2 if one of the following apply; if your adopted child with special needs, basically with the definition of a special needs program, if the adoption became final in 2025 and if your employer had a written qualified adoption assistance program as described earlier.

Now, before we go to Natalia to give some examples, I think we may have another polling question, right, David?

Yes, it is time for our third polling question. What is the maximum adoption credit for 2025? Is the amount A, $14,080; B, $15,950; C, 16,810; or D, $17,280. Remember, click the radio button best answers the question. If you did not receive the polling question, you can enter the letters A, B, C or D in the Ask Question text box. Again, your response is time stamped.

Okay, we're going to stop polling now unless let's share the correct answer on the next slide. And the correct answer is D, $17,280. Let's see how well you all did. I see that 95% of you answered correctly, wonderful job. So, Natalia, I think the audience is ready for you to take over with examples.

Well, I hope so, David, because the following examples help illustrate how qualified adoption expenses and employer provided adoption benefits apply to the maximum adoption credit allowed. So here we have example one. Let's say you paid $10,000 in qualified adoption expenses for the adoption of an eligible child. Under the Qualified Adoption Assistance Program, your employer reimbursed you for $4,000 of those expenses. The $4,000 reimbursement may be excluded from your income. However, because of your employer's reimbursement, $4,000 of the expenses no longer meet the definition of qualified adoption expenses. As a result, your maximum adoption credit is limited to $6,000. That's $10,000 minus $4,000.

Here's example two. Let's say you paid $20,000 in qualified adoption expenses for the adoption of an eligible child, including $8,000 for legal fees. Under a qualified adoption assistance program, your employer reimbursed you the $8,000 of legal fees. The $8,000 employer reimbursement may be excluded from your income. However, because of your employer's reimbursement, $8,000 of your expenses no longer meet the definition of qualified adoption expenses. So as a result, your maximum adoption credit is limited to $12,000 and that's $20,000 minus the $8,000.

Example three. The facts are the same as in example two, except that instead of reimbursing you for the legal fees, your employer directly paid the $8,000 to the law firm. Your employer's payment of the legal fees produces the same result as the employer's reimbursement of the legal fees in example two. So that's $8,000 exclusion and a $12,000 credit.

Here's the math in simpler terms. Each child can qualify for a total credit of 12,000 -- excuse me credit of $17,280, up to $5,000 can be refundable, meaning you can get that back if you owe no tax. The rest is non-refundable, which reduces your tax due. The refundable amount will depend on the amount of qualified adoption expenses for each eligible child. Any unused non-refundable amount can carry forward up to five years. For example, if you paid $20,000 in expenses, you can claim $5,000 refundable and $12,280 non-refundable this year. The remaining $2,720 cannot be carried forward to next year. If the math in these examples seems confusing, don't worry, using the worksheet in the Form 8839 instructions and filing with tax software or using a tax preparer can help prevent mathematical errors. The key is to keep accurate records of which year and expenses were made and also to whom each expense was paid and that's whether to yourself or a third-party so that the credit can be computed.

Example from page 10 of 8839 instructions, only unused non-refundable credit can be carried forward to 2026 and any credit carried forward will only be as non-refundable credit. Unused non-refundable credit can't be turned into a refundable credit in a future year. So here's another example. In 2025, if you paid $20,000 in qualified adoption expenses for the adoption of an eligible child, the adoption became final in 2025 and the maximum adoption credit per child is $17,280.

You claim a $5,000 refundable adoption credit on Form 8839, Line 13 and on Form 1040 Line 30. You don't have any credit carried forward from 2024. You claim a $12,280 non-refundable adoption credit on Form 8839, Line 18 and on Schedule 3, Form 1040, Line C. The remaining $2,720 can be carried forward to 2026. In 2026 you don't have any qualified adoption expenses. You can claim $2,720 non-refundable adoption credit on your 2026 Form 8839 and on your 2026 Schedule 3, Form 1040. You can't claim any of the $2,720 carry-forward as a refundable adoption credit because you already claimed the full $5,000 refundable credit for these adoption expenses.

So Form 8839 includes several worksheets to help calculate your exact credit. The credit limit worksheet limits your non-refundable credit to your tax due. The carry forward worksheet tracks any unused credits up to five years. The MAGI worksheet helps you check if income limits reduce your credit. And for foreign adoptions, the exclusion of prior year benefits worksheet helps figure out how much employer benefit can be excluded after finalization, so these tools ensure you calculate your credit accurately.

Some other tips when computing the credit from the 8839 instructions page three. The dollar limitation requires you to combine the qualified adoption expenses paid if you made more than one attempt to adopt one eligible US child. So, when you combine the amounts you spent, complete only the child in line, don't report the additional attempt or attempts on child two or child three lines. Complete the child two or child three line only if you adopted or tried to adopt two or more eligible children. For example 1, you plan to adopt one US child, you paid $10,000 of qualified adoption expenses in an unsuccessful attempt to adopt a child, you later paid $8,000, additional qualified adoption expenses and a successful adoption of a different child. Complete only the child one line because you made more than one attempt to adopt one eligible child.

Example 2 the facts are the same as in example 1, except that both attempts are unsuccessful and no adoption is ever finalized. Enter $18,000, that's $10,000 plus $8,000 on the child one line because you made more than one attempt to adopt one eligible child.

Example 3, you plan to adopt one US child, you paid $9,000 in qualified adoption expenses and an unsuccessful attempt to adopt a child. You later successfully adopted twins after paying an additional $24,000 in qualified adoption expenses, $12,000 per child. Enter $21,000, that's $9,000 plus $12,000, on the child one line because you made more than one attempt to adopt one eligible child. Enter $12,000 on the child two line because you made a successful attempt to adopt a second eligible child. Also, if you filed Form 8839 for a prior year in connection with this adoption, enter your 2025 information on the same line child one, Child two, or child three that you used in the prior year. If you adopted or tried to adopt more than three eligible children, fill in and attach as many Forms 8839 as you need to this list. Also add C attached to the right of the caution line below Line one.

David, I think we have one more polling question.

That's correct. Our final polling question is an attendance check, so please select the radio button on the screen. Once again, if you didn't receive the polling question, add the letter A as your response to the Ask Question text box to timestamp your response. I'm going to give you a couple seconds in order to be able to get that in.

Okay, we're going to stop the polling now. Thank you for responding and participating with the polling questions and I will now turn it back over to you. Natalia.

Thank you, David. So this slide highlights key IRS resources where you can find official, up to date information about the adoption credit. IRS.gov/adoption is the main landing page and a great starting point. It provides an overview of the adoption tax credit eligibility requirements, maximum credit amounts, income limits, and frequently asked questions. So listed here are more specific categories you can find on the site as well. You can also go to irs.gov and type in your subject, for example adoption in the search engine. So we strongly encourage you to use these official IRS resources so they can provide the most accurate and current information. If additional help is needed, you can also reach out to the IRS or work with a trusted tax professional.

This brings us to the end of today's presentation on the 2025 Adoption tax Credit. Thank you all for taking time to join us today. We appreciate your participation and your interest in learning more about the Adoption Tax Credit and how it might apply for the 2025 filing season. At this time we would like to open the floor for questions. If you have any questions related to adoption tax credit eligibility, qualified expenses or filing considerations, please feel free at this time to submit them.

Thanks Natalia. Hello again, we've made it now to the fun part of our live Q&A. So I'll moderate the session. But before we start, I do want to thank everyone for attending and staying engaged during today's presentation 2025 Adoption Tax Credit. If you have not input your questions, there's still time, go ahead and click on the drop-down arrow next to the Ask Question field, type in your question, click send. Priscilla and Natalia are staying on with us to answer your questions, but we're now also joined by our subject matter expert, Filomena Mealy, who will be able to provide additional clarification and address more detailed and technical questions as needed. Filomena is a 38-year veteran and serves as a Management and Program Analyst in the Stakeholder Liaison Planning Special Projects Office that focuses on implementing strategic outreach efforts to the tax professional and small business community. Prior to that, Filomena was a Relationship Manager in the Tax, Outreach, Partnerships and Education Branch of the Internal Revenue Service. Filomena has held several positions ranging from Auditor, Quality Reviewer, Electronic Filing Coordinator and Earned Income Tax Credit, EITC, Coordinator.

Before we start, we may not have time to answer all the questions submitted but we're going to answer as many as time allows. As a reminder, we're happy to provide general information, but we can't offer personal tax advice. For questions specific to individual tax situations, taxpayers may want to consult a trusted tax professional. So with that and let's get started so we can get to as many questions as possible.

This first question is for Priscilla and the practitioner writes, am I correct that the biggest change for 2025 is the Adoption Tax Credit is now a hybrid credit, meaning a total of $17,380 can be claimed and it includes both the refundable and non-refundable portion. In the past the credit was only non-refundable.

Great question. So yes, that is correct. The One Big Beautiful Bill Act, which was signed into law on July 4, 2025, allows up to $5,000 of the $17,280 for the adoption tax credit expenses to be treated as a refundable credit. So what that means is that if the parent has no tax liability or owes zero tax, they can get up to that amount back on their return. So I do want to emphasize though that the words up to and per eligible child, so I don't want anyone thinking that this is basically an automatic flat $5,000 per adopted child because the refundable amount depends on several things which that includes the amount -- the actual amount of the qualified eligible expenses or costs incurred, that is also the parent's final tax liability for the year and the number of eligible adopted children. So basically the $5,000 is the maximum ceiling amount of what a parent or client can receive if they did not owe any tax. And what makes the adoption tax credit unique in this year is that it is a hybrid credit. It is part refundable and part non-refundable. So, while some of the 2025, $17,280 may be received up front as a refundable credit, the rest can be treated as a non-refundable or $12,280 per eligible child. So, I hope that helps and answers the question. Thank you.

Well, thanks. We have one more this question probably should go to Natalia. Natalia, the practitioner wants to know if you heard correctly that a client may be eligible to exclude from their income as much as another $17,280 if their employer has a qualified adoption assistance program and the employer pays amounts to help cover adoption costs. So, in other words, could the client potentially receive both a credit and an income exclusion for each eligible child?

Okay, yeah, David, that is possible and generally correct. If the employer has a written plan and provides the fringe benefit that pays for the adoption cost, then the adoptive parent can possibly exclude from income up to $17,280 and that will be used in part three of Form 8839 per eligible adopted child. You can also be able to claim a total refundable and non-refundable adoption tax credit of up to that $17,280 using Part 2 of Form 8839. But you can't include any of the employer provided expenses because, as Priscilla explained in her opening, that would be considered double dipping. So if your employer provides this benefit, you should receive a Form W2 showing the amounts to exclude in Box 12 with Code T, and those amounts will be carried over to Form 8839. So obviously not every employer offers this benefit which is an employer provided adoption benefit plan. Not every parent is going to be able to exclude a portion of the cost from income. So, also not every line Form 8839 part three will need to be completed -- that's part three will need to be completed. There are also additional stipulations or special rules for claiming the employer provided adoption benefits for an eligible foreign child. So, if you fall into that category, it's best to check out IRS.gov/adoptions or the instructions Form 8839 under the category qualified adoption expenses.

Well, out of fairness, I'm going to direct the next question to Filomena. Filomena, why can't a shareholder take the income exclusion for employer provided adoption benefits?

Thank you, David. I can't really address the intent of the legislation, but I believe the participant is referring to the provision that applies to the S-Corporation's shareholders. In short, you cannot exclude employer provided adoption benefits if the employer is an S-Corporation and as the adopting parent, you own more than 2% of this stock. Hopefully that answers the question.

Well, thanks. Yeah, Filomena, I appreciate that. I'm going to direct the next question to Priscilla. So it seems question again is coming from a practitioner who has a client who spent in 2025, $3,500 in attorney fees and $5,000 in court filing fees plus the $4,000 overall to adopt a stepchild. So, can the parent claim the full $4,000 as a credit?

Wow, another great question. So, thank you for asking that. So, in short, no, but the court costs and attorney fee personally paid to adopt the stepson are not considered qualified adoption expenses for the adoption tax credit. So, the provision especially states that adoption expenses related to the adoption of a spouse child, unfortunately does not qualify. Sorry.

Well, thanks. I'm going to direct this next question to Natalia, but if Priscilla, you want to chime in, feel free. The client paid 58,000 for a surrogate to carry their child. Do the medical and IVF fertility costs paid or surrogate compensation for travel to the hospital or surrogate agency fees qualify?

David, if you're asking a question, you might be on mute.

If the client paid over $58,000 for a surrogate to carry their child, do the medical and IVF fertility costs or surrogate agency fees qualify?

Was that one for me, David?

Yeah, I think that's for Natalia.

Okay, I can answer that just like Priscilla just answered. The short answer for this one is no. Those expenses are directly related to carry out a surrogate parent arrangement, which the guidance prohibits, so it doesn't qualify.

Well, thank you. Priscilla, anything you want to add to that response?

No, no. Natalia summed it up and the response was right on point.

Okay, excellent. I'm going to direct the next question to Filomena. Filomena, is it true that you can't take the credit or the exclusion until the year a foreign adoption becomes final? If so, how do you treat employer provided payments on the return before the adoption is finalized?

Thanks, David. Yes, that is definitely true. If the eligible child was not a US Citizen, not a resident of the United States, including US Territories like Guam or Puerto Rico, at the time the adoption actually begins, then the child would be deemed a foreign child and the adoption would be categorized as a foreign adoption. In that kind of situation or scenario, when you're dealing with an eligible foreign child, the credit and the exclusion cannot be taken on the Form 8839 until the year the actual adoption is finalized. This means if your employer makes an adoption assistance payment in tax year 2025, for example, but the adoption for a foreign child is not finalized until tax year 2026, then your client must include the payments and income for tax year 2025. That said, in tax year 2026, an adjustment can be made to take the exclusion on the Form 8839 in Part 3.

It's important to note that employers aren't required to withhold income tax or federal withholding or for qualifying expenses under the Employer Adoption Assistance Program. So in those instances where the payments can't be excluded from income, it would be wise to advise your client to submit a W4 to the employer so that you can adjust the federal withholding or make an estimated tax payment just to avoid that penalty for underpayment of estimated taxes. Keep in mind you're adding this income from the W2 in that year that you couldn't take it.

Now, as to the credit portion, you can add up the qualifying payments made in the years prior to the final foreign adoption and then take up to the maximum credit for the specific year. So, when we're talking tax year 2025, the maximum credit is $17,280 subject to the modified adjusted gross income phase outs. Now, if the final year was in 2026, we don't know the exact amount because it'll be increased based on inflation, but you would take that amount in 2026.

Now, after saying all that, I would be remiss if I didn't mention that parents may have a little flexibility or options in determining the final year of the foreign adoption. That can depend on when the final foreign court adoption hearing is held in a country that participates either in a non-Hague or Hague proceedings. I could possibly spend about 30 minutes just covering the adoption proceedings in a foreign country, but instead I recommend that you review the Instructions on Form 8839, which has embedded hyperlinks to Revenue Procedure 2005-31 and that was listed in the resource sections. The revenue procedure explains the treatment of adoption proceedings in a foreign country that abides by the Hague adoptions or the non-Hague adoptions, and I think I'll read the response with that, David.

Well, thanks Filomena. You did such a great job answering the last question. Really appreciate your answering those questions.

Welcome.

Now over to you Natalia for some closing points.

Thanks David. Here are some key takeaways that are detailed on the screen. The adoption tax credit can be substantial, but the purpose of the cost, amount, timing and eligibility depend on the type of adoption. We want to remind you to confirm the details to avoid costly mistakes when preparing, explaining or reviewing a return. Also, income limits, employer adoption benefits, accurate documentation, and Form 8839 can all directly affect whether the adoption tax credit is reduced, excluded or claimed correctly. Again, you can find detailed information on the adoption tax credit on IRS.gov/adoption and David, I think that's all we have. Thank you.

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