IRS Automatically Sending Refund Checks to Some Families With Leftover Adoption Credits

Thousands of families are getting IRS checks they did not ask for after a Treasury reinterpretation converted long-unused adoption tax credits into refundable cash. In many cases, figuring out whether you qualify takes only a few minutes.

An IRS envelope usually signals bad news. For more than 50,000 taxpayers, though, it now means an unexpected refund.

The payments stem from adoption tax credits that families had been carrying forward for years because their tax liability was too low to use the full amount. Treasury has reinterpreted the Working Families Tax Cuts law so that unused credit can be paid out as cash for tax year 2025, up to $5,000 per child. The IRS is issuing the money automatically, and no amended return is required.

How the Change Turned Old Credits Into Refunds

The IRS said it began issuing refunds and expects to finish most payments by the end of the year. Under Treasury’s clarified interpretation, adoption tax credit carryforwards from prior tax years can increase the refundable portion of the credit for tax year 2025, subject to the $5,000 limit per qualifying child.

The refund reflects two parts of the tax code working together. Section 23(c) allows an unused adoption credit to be carried forward, but only through the fifth taxable year after it arose and on a first-in, first-out basis. Section 23(a)(4) makes the part of the credit above the $5,000 threshold refundable. A refundable credit can still generate a payment after your tax bill has been reduced to zero.

Before this change, older carryforwards could only offset taxes owed. Families with modest incomes often watched those credits remain unused as the five-year window narrowed. Many of the affected taxpayers were grandparents who adopted grandchildren.

Example: A Retired Couple Receives $5,000

Take this composite example: a retired couple in their mid-60s adopted their grandson in 2022 and qualified for a $15,000 adoption credit. Their annual federal income tax, based mostly on a small pension and taxable Social Security income, is about $1,500.

On the original 2025 return, the credit erased the couple’s $1,500 tax bill and the remainder carried forward. After the IRS adjustment, $5,000 of that balance becomes refundable, the nonrefundable portion still covers the $1,500 tax, and $4,000 moves into 2026. That means $5,000 lands in their bank account months after filing.

Who Can Receive the Automatic Refund

• You carried a credit into 2025. Your 2025 return claimed an unused adoption credit that originated in 2020 through 2024.
• Some of it remained after your 2025 tax was calculated. If your tax bill used up the entire carryforward, there is nothing left to refund.
• Your income fit the limits. For 2025, the credit begins phasing out at a modified adjusted gross income of $259,190 and disappears at $299,190. The maximum credit for 2025 is $17,280 per eligible child.
• You filed on time. Returns filed before April 15, 2026 will receive the adjustment automatically. Extension filers, and accounts flagged for identity theft, blocks or dependency conflicts, will be reviewed later.

Families who adopted children with special needs, often from foster care, may still have large balances even when their actual out-of-pocket costs were low. Section 23(a)(3) treats a finalized special-needs adoption as if the family had qualified expenses equal to the full credit amount, regardless of what they actually spent.

Check the IRS Notice Before Spending the Money

The IRS says notices usually arrive within 30 days of the adjustment. Each notice will show the amount and explain whether it was paid as a refund or applied to another tax or non-tax debt. Back taxes or certain federal debts may prevent the payment from reaching you.

Compare the notice carefully with your 2025 return and keep it with your tax records. The IRS app, which replaced IRS2Go, lets users check refund status and view certain notices. Scammers also promote fake tax credits, and the IRS has warned about one such scheme. The adoption credit adjustment is real, costs nothing, and does not require filing, so any request for payment should be treated as a warning sign.

What to Do With Leftover Credits in the Future

The IRS says this refundable treatment of carryforwards applies only for 2025. Any balance carried into a later year, such as the couple’s remaining $4,000, should revert to offsetting tax only, while the five-year carryforward clock keeps running.

For retirees, that can make the leftover credit a planning tool. A credit that only offsets tax is most useful in a year when you owe tax. One approach is to intentionally increase taxable income, such as through a partial Roth conversion, so the credit offsets tax you would otherwise pay. The years between your final paycheck and your first required minimum distribution are often the least expensive time to do that, although the conversion could increase Medicare premiums later and make more of Social Security taxable, so it is worth running the numbers first.

This refund applies only at the federal level. State adoption credits have separate rules, and some states do not offer one at all. The IRS expects to complete most adjustments by the end of the year, so taxpayers should keep checking their mail for notices. If a large carryforward remains after this refund, a CPA or fiduciary advisor can help time income so the credit is used before it expires.