The IRS Is Mailing Refunds to Families Who Never Asked for Them. Here’s Who Qualifies (adoption credit carryforward refunds)
Tens of thousands of families are receiving IRS checks they never requested, thanks to a quiet Treasury reinterpretation that turned years of stranded adoption credits into cash. Finding out whether you qualify takes less time than you might expect.
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An envelope from the IRS usually means trouble. This fall, for more than 50,000 taxpayers, it means a refund they never requested.
The money comes from unused adoption tax credits that families had been carrying forward year after year because their tax bills were too small to absorb them. Treasury has reinterpreted the Working Families Tax Cuts law so that stranded credit becomes cash for tax year 2025, capped at $5,000 per child. The IRS is paying it automatically, and families don’t have to file an amended return.
How a Treasury Reinterpretation Turned Old Credits Into Cash
On Oct. 16, 2026, the IRS announced it had started issuing the refunds and expects to finish for most eligible taxpayers by the end of the year. Under Treasury’s clarified reading, “for tax year 2025 only, adoption tax credit carryforwards from prior tax years (2020-2024) can increase the amount of the adoption tax credit that is refundable in 2025, subject to the $5,000 per qualifying child limitation.”
The refund comes from two provisions of the Internal Revenue Code working together. Section 23(c) lets an unused adoption credit roll forward, but no further than the fifth taxable year after the year it arose, used on a first-in, first-out basis. Section 23(a)(4) makes the portion of the credit that does not exceed $5,000 refundable. A refundable credit still pays you after your tax bill reaches zero.
Before this change, old carryforwards could only offset tax. Families with modest incomes watched those credits sit on their returns as the five-year period ran. Many were grandparents who had adopted their grandchildren.
Worked Example: A Retired Couple Gets $5,000 Back
Consider a composite example: a retired couple in their mid-60s who adopted their grandson in 2022. Assume they qualified for a $15,000 adoption credit. Their federal income tax, mostly on a small pension and the taxable part of their Social Security, runs about $1,500 a year.
| Tax Year | Credit Used | Carryforward Left |
|---|---|---|
| 2022 through 2024 | $1,500 per year | $10,500 entering 2025 |
| 2025, original return | $1,500 against tax | $9,000 |
| 2025, after IRS adjustment | $1,500 against tax plus $5,000 refunded | $4,000 |
On their original 2025 return, the credit wiped out their $1,500 tax bill and the rest carried forward. After the IRS adjustment, $5,000 of that carryforward becomes refundable, the nonrefundable piece still covers their $1,500 tax, and $4,000 rolls into 2026. That’s $5,000 in their bank account months after they filed.
Who Qualifies for the Automatic Adoption Credit Refund
- You carried a credit into 2025. Your 2025 return claimed an unused adoption credit that arose in 2020 through 2024.
- Some of it was still unused after your 2025 tax. If your 2025 tax bill already absorbed the whole carryforward, you have nothing left to refund.
- Your income fit the limits. For 2025, the credit begins phasing out at modified adjusted gross income of $259,190 and disappears at $299,190. The 2025 maximum is $17,280 per eligible child.
- You filed on time. Returns filed before April 15, 2026 get the adjustment automatically. Extension filers, and accounts with identity theft indicators, blocks or dependency conflicts, will be reviewed later in 2026.
Families who adopted children with special needs, often from foster care, can carry large balances even when they spent little. Section 23(a)(3) treats a finalized special-needs adoption as if the family paid qualified adoption expenses up to the full credit amount, whatever they actually spent.
Read Your IRS Notice Before You Spend a Dollar
The IRS says notices generally arrive within 30 days of the adjustment. Each one shows the amount and whether it became a refund or was applied to another tax or non-tax debt. Back taxes or certain federal debts could prevent the money from ever reaching you.
Compare the notice line by line with your 2025 return and file it with your tax records. The IRS app, which replaced IRS2Go on Sept. 25, 2026, lets you check refund status and view select notices. Scammers sell fake tax credits: the IRS issued a warning about one such scheme in September. The real adoption adjustment costs nothing and requires no filing, so treat any fee request as a red flag.
Plan Now for Leftover Credits That Lose Refundability in 2026
The IRS describes this refundable treatment of carryforwards as a 2025-only rule. Any balance carried into 2026, like the couple’s $4,000, should go back to offsetting tax only, and the five-year period keeps running on it.
For retirees, that turns a leftover credit into a planning tool. A credit that offsets only tax is most valuable in a year when you owe tax. One option is to deliberately raise taxable income, for example with a partial Roth conversion, so the credit absorbs tax you would otherwise pay. The quiet years between your last paycheck and your first RMD are usually the cheapest time to run one, and we sized up that window in a free Roth guide here. That conversion can raise your Medicare premiums two years later and make more of your Social Security taxable, so run the numbers first.
This refund is federal. State adoption credits follow their own rules, and your state may not have one. The IRS expects to finish most adjustments by the end of the year, so watch your mailbox through December. If a ample carryforward remains after this refund, a CPA or fiduciary advisor can help you time your income so the credit gets used before it runs out.
Contact [email protected] for any questions or corrections.
Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
