The Internal Revenue Service announced on October 16, 2026 that it has started to issue direct refunds to taxpayers who previously carried forward unused adoption credit amounts. More than 50,000 families are expected to receive a payment before the year ends, even though they filed their 2025 returns months earlier. This action stems from a new Treasury Department interpretation of the Working Families Tax Cuts, which temporarily makes a portion of the credit refundable for the 2025 tax year.
Under the prior rule, the adoption credit could only reduce a taxpayer’s liability; any excess was permitted to be carried forward for up to five years but could not be refunded. The revised guidance allows carryforwards from the 2020-2024 tax years to increase the refundable portion of the credit, capped at $5,000 per qualifying child. The change applies solely to 2025, meaning the credit will revert to its former non-refundable status in subsequent years.
How the IRS is processing the refunds
Rather than requiring each affected taxpayer to file an amended return, the IRS is automatically adjusting eligible accounts. Adjustments began in late September and will continue until most have been completed, with a target of finishing by the end of 2026. Taxpayers who filed their 2025 Form 1040 before April 15, 2026, will receive the adjustment without any additional steps. Those who filed after the deadline, used extensions, or have account flags such as identity-theft alerts will be reviewed later in the year.
Each affected individual will receive an IRS notice within roughly 30 days of the adjustment. The notice details the amount of the refund, explains whether the payment is being sent directly or applied to an existing tax or non-tax debt, and advises taxpayers to keep the document with their records. The standard “Where’s My Refund?” tool will not display this payment; instead, taxpayers should consult their notice, transcript, or the IRS Online Account portal.
Eligibility criteria and required actions
To qualify, a taxpayer must have reported an adoption credit carryforward from 2020-2024 on Form 8839 when filing the 2025 return. If the carryforward was omitted, the family may need to submit Form 1040-X to claim the missed amount. The IRS will not automatically lift any estimated-tax penalties that were calculated using the old, non-refundable credit; affected taxpayers can request relief by filing Form 843.
Because the refund reduces the amount of credit that can be carried forward into 2026, families should recompute their 2026 Form 8839 worksheet to reflect the lower balance. Additionally, any refund may be offset against past-due federal or state debts, including defaulted student loans. In such cases, the IRS will issue a separate offset notice, and joint filers may need to file Form 8379 to protect the non-debtor spouse’s portion.
Even though the process is automatic, staying informed is essential. Taxpayers should create an IRS Individual Online Account to monitor adjustments, view notices, and verify that the refund has been correctly applied. Keeping the adjustment notice with other tax documents will simplify any future audits or inquiries. Finally, families planning to adopt in future years should be aware that the refundable provision is a one-year exception; the credit will return to its non-refundable status for 2026 and beyond, so timing of adoption expenses may affect
