IRS Begins Automatic Refunds to More Than 50,000 Families Who Claimed Adoption Credit Carryforwards

After years of carrying unused adoption credit from one tax return to the next, more than 50,000 adoptive families are now seeing part of that credit paid out. The Internal Revenue Service said on Oct. 16, 2026, that it has begun issuing refunds to taxpayers who benefited from an adoption tax credit carryforward, and that it expects most of the eligible refunds to be finished by the end of the year.

The payments are going out without amended returns. The IRS said each adjustment is followed by a notice that explains it.

Why the IRS Is Paying These Families Now

The refunds come from a change in how the Treasury Department reads the adoption credit rules in the tax law the administration calls the Working Families Tax Cuts. According to IRS news release IR-2026-123, Treasury has clarified that for tax year 2025 only, unused credit carried forward from tax years 2020 through 2024 can increase the portion of the credit that is refundable in 2025.

That increase is capped at $5,000 per qualifying child.

The distinction matters because a nonrefundable credit can only reduce a tax bill to zero. A family that adopted a child, ran up large qualified expenses, and owed little federal income tax could not use the whole credit in the year it was earned. Under Section 23 of the Internal Revenue Code, the leftover amount rolls forward for up to five years. Any part still unused after that is lost.

A refundable credit works differently. Once the tax bill reaches zero, the remainder is paid out. By letting older carryforwards count toward the refundable share on 2025 returns, the Treasury reading lets part of that stranded credit be paid out instead of expiring.

IRS Chief Executive Officer Frank J. Bisignano said in the release that by issuing the refunds without requiring an amended return, “the IRS is helping reduce the financial burden on those who decided to adopt a child into their family.”

Who Gets a Refund Automatically, and Who Waits

Timing depends mostly on when and how a family filed its 2025 return. The IRS said refunds and account adjustments began in late September 2026 and will continue until they are complete.

• Filed before April 15, 2026: These taxpayers will generally receive any adjustment automatically.
• Filed on an extension: These returns will be reviewed later in 2026, after processing is finished.
• Accounts with problems: Returns flagged for identity theft, account freezes, dependency conflicts or other issues will also be reviewed later in 2026, once the issue is resolved.

The IRS said that generally no action is required and that no amended return is needed to receive the additional credit. Accounting Today editor-in-chief Michael Cohn reported the same terms the day the IRS announced them, noting that the agency will adjust affected accounts on its own and issue whatever refund results.

Not every adjustment reaches a bank account in full. The IRS said the notice will state whether the adjustment was paid as a refund or applied to another tax debt or a non-tax debt. Families with an old balance owed should expect the letter to spell out exactly where the money went.

What the IRS Letter Will Show

Families should watch the mail. The IRS said it generally sends a notice within 30 days of making the adjustment. The letter will state the amount of the change and how it was applied.

The agency asked taxpayers to do three things with that notice: review it, compare it against their 2025 tax return, and keep it with their tax records. Families who used a tax preparer may want to share a copy so the preparer’s records match the IRS account, especially if any carryforward remains for future years.

For those who would rather not wait for paper, the IRS points taxpayers to its Individual Online Account, where people can view tax records, refund status, notices and payments.

Because the refunds arrive without a claim, a letter that asks for a fee or for bank details to “release” the money does not match the process the IRS described. A real adjustment can be checked against the online account.

How the Adoption Credit Works Going Forward

The one-year carryforward exception applies only to tax year 2025. The credit itself continues, with figures that adjust each year for inflation.

For tax year 2026, the IRS adoption credit page lists a maximum of $17,670 in qualified expenses per child. Up to $5,120 of the credit per child is refundable for 2026, claimed with Schedule 3-A of Form 1040. The non-refundable portion can still be carried forward for up to five years.

Income limits also apply. For 2026, the IRS lists the full credit for modified adjusted gross income of $265,080 or less, a reduced credit between $265,081 and $305,079, and no credit at $305,080 or more. Employers can also provide up to $17,670 in tax-free adoption assistance in 2026.

The credit is claimed on Form 8839, Qualified Adoption Expenses, attached to the federal return. The IRS keeps a summary of the broader law changes on its Working Families Tax Cuts page.

For families who adopted in recent years and carried credit forward, the practical takeaway is short: the IRS says eligible accounts are being adjusted without a new filing, the notice that follows belongs with the 2025 tax records, and the agency expects most of the refunds to be issued by Dec. 31, 2026.

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This article was produced with AI assistance and edited for accuracy against the sources linked above.

Image: Carol M. Highsmith – Public domain/Wikimedia Commons