Key Points
- The IRS is sending automatic refunds to more than 50,000 families who carried unused adoption credits into their 2025 returns.
- Carryforwards from 2020 through 2024 can raise the refundable credit for 2025 only, up to $5,000 per child.
- Most families don’t need to do anything, but those who left the carryforward off their return may need to file Form 1040-X.
The IRS has started sending automatic refunds to more than 50,000 taxpayers who carried unused adoption tax credits into their 2025 returns. The agency announced the payments on October 16, 2026. Adjustments began in late September, well after the normal IRS tax refund schedule wrapped up. The IRS expects most eligible families to be paid by the end of 2026.
The refunds come from a Treasury reinterpretation of the Working Families Tax Cuts law. For tax year 2025 only, carry-forwards from 2020 through 2024 can raise the refundable portion of the credit. That refundable amount is capped at $5,000 per qualifying child. Families don’t need to file an amended return, and the IRS will mail a notice within about 30 days of each adjustment.
You can find more federal credit changes in our tax center.
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Why It Matters
The adoption credit was nonrefundable before 2025, so families with small tax bills could only carry unused credit forward for up to five years. The new law made up to $5,000 refundable, but the IRS first left carryforwards out of that math.
IRS CEO Frank Bisignano reversed that reading at a House Ways and Means hearing in March, after lawmakers argued it shut out families who filed from 2020 through 2024.
Take a family with one adopted child and an $8,000 carryforward from 2023. If that family owed almost no federal tax in 2025, the old reading left most of the credit unused. The corrected rule could put up to $5,000 in their pocket, subject to income limits and other credit rules. That money arrives like any other refund, and our ideas for putting a tax refund to work apply here too.
The Details
The IRS adoption credit carryforward FAQ lays out who gets paid and what to watch:
- Who Qualifies: Taxpayers who filed a 2025 Form 1040 and had adoption credit carryforwards from 2020 through 2024 on Form 8839.
- Timing: Returns filed before April 15, 2026, are adjusted automatically. Extension filers and accounts with identity theft flags, freezes, or dependency conflicts get reviewed later in 2026.
- Missing Carryforward: Families who left the carryforward off their 2025 return may need to file Form 1040-X to get the adjustment.
- Tracking: Where’s My Refund? won’t show this payment. Check your notice, transcript, or IRS Online Account instead.
- Penalties: The IRS won’t automatically remove an estimated tax penalty tied to the old calculation. Request relief with Form 843.
- 2026 Impact: Your carryforward into 2026 shrinks by the amount refunded, so update your Form 8839 worksheet.
How This Connects
These refunds can be reduced or seized for past-due federal or state debts, including defaulted federal student loans. The IRS says an offset refund generates its own notice. Borrowers should know how student loan defaults can take your tax refund, especially now that the Treasury Department runs student loan collections. Joint filers whose refund covers a spouse’s debt may recover their share with Form 8379.
What’s Next
The IRS expects most adjustments done by year-end, with extension filers and flagged accounts processed after. The carryforward rule doesn’t repeat, so 2026 returns follow the 2026 forms as written. Keep your IRS notice with your records, and review our last-minute tax reminders before filing next spring.
Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.