Our friends at the Internal Revenue Service announced the annual inflation adjustments for tax year 2025, including slight increases for the Adoption Tax Credit and adoption assistance exclusion. This will impact the individual tax returns filed in 2026 and will benefit families whose adoptions are completed in 2025.
In Rev. Pro. 2024-40, the IRS made two changes that may benefit adoptive parents. First, it increased the maximum exclusion for employer-provided adoption assistance to $17,280, compared to $16,810 in 2024. Similarly, the adoption tax credit limit is also increased to $17,280, up from the previous year’s $16,810.
These benefits will be phased out when the adoptive parents’ Modified Adjusted Gross Income (MAGI) for 2025 is greater than $259,190. They will not be entitled to any credit or exclusion if their MAGI is equal to or greater than $299,190 for 2025.
These inflation adjustments are intended to allow adoptive families to exclude a slightly larger portion of adoption-related expenses from taxable income and claim a greater tax credit, thereby reducing the overall cost of adoption. For many families, these adjustments make growing their family through adoption possible.