OBBBA Made Enhancements to the Adoption Child Tax Credit
Many farmers will adopt a child in the future and the One Big Beautiful Bill Act provides for additional tax benefits
There has been a tax credit for many years in the Tax Code for adopting a child or children. However, one of the major issues with the credit was that it was fully non-refundable.
This meant that taxpayers had to owe income tax in order to receive benefit from the tax credit.
OBBBA, which was passed in July of 2025, changed the rules on the adoption tax credit and provides that up to $5,000 of the tax credit per child is now refundable. This means that even if you do not owe at least $5,000 in taxes you will receive value of at least $5,000.
These changes are effective beginning in 2025, and the maximum tax credit is $17,280 in 2025 and is indexed to inflation. For 2026, the maximum amount increases to $17,670 and this is per child.
The maximum refundable portion of the credit is $5,000 in 2025 and increases to $5,120.
The IRS just released Q&A guidance on some of these changes to the credit.
If a taxpayer is unable to use the full amount in the first year, the excess is allowed to be carried forward for five years. If not fully used after five years, any excess will expire at that point.
Also, Indian Tribes are now allowed to determine if an adopted child has special needs which allows for a higher credit. In the past, only a state was allowed to determine this.