On October 22, 2024, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2024-40 (“Procedure”), wherein it announced the Adoption Tax Credit and Adoption Assistance Programs, which are set to take effect in 2025.
KingSpry’s Adoption and ART Practice Chair and Family Law Attorney, Dorota Gasienica-Kozak, Esq., reviews the Procedure and highlights its key provisions regarding the upcoming Adoption Tax Credit and Adoption Assistance Programs.
Adoption Tax Credit
Section 2.04 of the Procedure discusses some updates to the Adoption Tax Credit, which is set to take effect for taxable years beginning in 2025. The tax credit for the adoption of a child with special needs will be $17,280.00, which was previously $16,810.00. Additionally, the maximum tax credit allowed for other adoptions will be the amount of qualified adoption expenses up to $17,280.00, which was previously $16,810.00.
The Procedure also details that available adoption credit (1) will begin to phase out under 26 U.S.C. § 23(b)(2)(A) for taxpayers with a modified adjusted gross income of $259,190.00 or more and (2) be completely phased out for taxpayers with a modified adjusted gross income of $299,190.00 or more.
Adoption Assistance Programs
Section 2.19 of the Procedure outlines the Adoption Assistance Programs, which will also roll out in 2025. Starting in 2025, up to $17,280.00 may be excluded from an employee’s gross income for the adoption of a child with special needs.
Additionally, $17,280.00 may be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program.
The above-listed “phase out” standards for the Adoption Tax Credit will also apply to Adoption Assistance Programs.
