Adoption Tax Credits and Deductions in Arkansas

How Much Is the Adoption Tax Credit?

For many families in Arkansas, the federal adoption tax credit is the single most important financial tool in their journey. For the 2025 tax year, the maximum credit is $17,280 per child.

This amount is a "dollar-for-dollar" credit, meaning it directly reduces the amount of federal income tax you owe. If you adopt more than one child, such as a sibling group or twins, you can claim the full amount for each child.

The credit is subject to income phase-outs. For 2025, the credit begins to decrease if your Modified Adjusted Gross Income (MAGI) is above $259,190 and is completely unavailable if your MAGI reaches $299,190.

Who Qualifies for the Adoption Tax Credit?

The adoption tax credit is designed to be inclusive, but there are specific rules on who qualifies for the adoption tax credit:

• Domestic & Private Adoption: Families adopting a child through an agency like American Adoptions of Arkansas qualify for the credit.
• Special Needs Adoption: If you adopt a child who is designated as "special needs" by a state or tribal government, you can claim the full $17,280 even if your actual expenses were lower.
• International Adoption: You qualify, but you can only claim the credit in the year the adoption is finalized.
• Filing Status: You must file a joint return if you are married. Single parents and heads of households also qualify.

Please note: You cannot claim a tax deduction for adoption for a stepchild adoption. The credit is reserved for those bringing a new child into their family through the legal adoption process.

What Counts as a Qualified Adoption Expense?

The IRS is specific about what expenses you can use to reach that $17,280 limit. Qualifying expenses must be "reasonable and necessary" for the legal adoption of an eligible child. These include:

• Agency Fees: All professional fees paid to a licensed agency.
• Attorney Fees: Legal costs for filing, consents, and finalization.
• Travel Expenses: This includes airfare, gas, lodging, and even meals while you are away from home for adoption-related purposes.
• Court Costs: Filing fees and other state-required legal expenses.

To see how these costs fit into the overall process, you can view our breakdown of adoption fees.

Is the Adoption Tax Credit Refundable?

One of the most common questions we hear is: "Is the adoption tax credit refundable?"

For over a decade, the answer was "no." However, as of 2025, the credit is now partially refundable up to $5,000.

This is a major win for families. Previously, if you owed zero in taxes, you got zero back. Now, even if you have no tax liability, you can receive up to $5,000 as a cash refund in the year you claim it. The remaining balance (up to the $17,280 limit) stays as a non-refundable credit that can be carried forward for up to five years.

How and When to Claim the Adoption Tax Credit

Claiming the adoption tax credit requires filing IRS Form 8839 alongside your Form 1040. The timing depends on when you paid your expenses:

• Year of Payment: If you pay expenses in the year before your adoption is final, you claim them on the following year's tax return.
• Year of Finalization: Any expenses paid in the same year the adoption is finalized are claimed on that year’s return.
• Documentation: You do not need to send receipts with your taxes, but you must keep them. We provide our families with a clear, itemized report of all expenditures to make this process easy for your CPA.

State Adoption Tax Credit in Arkansas: What You Should Know

Does Arkansas offer a state adoption credit? Yes. Arkansas is one of the few states that offers a direct state adoption tax credit in addition to the federal benefit.

The Arkansas state adoption tax credit is equal to 20% of the amount allowed on your federal return. For example, if you qualify for the full $17,280 federal credit, you may be eligible for an additional Arkansas state credit of approximately $3,456. To claim this, you must attach a copy of your federal Form 8839 to your Arkansas return.

Additionally, Arkansas offers a $500 Credit for Developmentally Disabled Dependents (Form AR1000-DD), which is a non-refundable credit available to parents of children with certain permanent disabilities.

Adoption Tax Credit vs. Tax Deduction: What’s the Difference?

It is easy to confuse a tax deduction for adoption with a credit, but they are very different:

• Tax Deduction: Lowers your taxable income (e.g., if you earned $50,000 and have a $10,000 deduction, you are taxed as if you earned $40,000).
• Tax Credit: Lowers your actual tax bill dollar-for-dollar (e.g., if you owe $5,000 in taxes and have a $5,000 credit, you now owe $0).

Because it is a credit, the adoption tax credit is much more valuable to families, as it essentially "pays back" the first $17,280 you spend on your child’s adoption.

Common Mistakes Families Make with the Adoption Tax Credit

We want to make sure you get the full benefit you are entitled to. Avoid these common errors:

• Forgetting to Carry Forward: If you don't use the full credit in year one, remember you can carry it forward for up to five years.
• Double-Claiming Employer Benefits: If your employer reimburses you for adoption expenses, you cannot claim those same expenses for the adoption tax credit. However, you can use the credit for any remaining costs above the reimbursement.
• Missing Travel Costs: Many families forget that every hotel stay, meal, and mile driven for the adoption counts toward the credit limit.

How the Adoption Tax Credit Fits into Your Financial Plan

Understanding the adoption tax credit is a key part of affording adoption. While it doesn't help with the upfront costs, it acts as a massive "reimbursement" that can be used to pay off adoption loans or replenish your savings once the process is final.

Our specialists work with you to provide accurate cost estimates so you can plan exactly how much of the credit you will be able to utilize.

How American Adoptions of Arkansas Supports Your Financial Journey

You shouldn't have to navigate tax forms and financial planning alone. As a licensed Arkansas agency, we are here to provide the transparency and documentation you need to claim your adoption tax credit with confidence.

We provide our families with a specialized financial protection program and expert guidance to ensure your investment is safe.

Call us today at 1-800-ADOPTION or contact us online to speak with a specialist. Let’s talk about your budget, the tax credit, and how we can help you build your family.

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