Question: Our organization recently surveyed its employees to determine which benefits were most appreciated and whether there are any they’d like us to add. We were surprised to learn there was great interest in adoption-related benefits. So, we’re now considering designing and rolling out a full-fledged adoption assistance program. But we obviously need to learn as much as possible about the details of such an initiative before we make a decision. Is adoption assistance a viable benefits option for employers, and what are the tax implications?

Answer: Adoption assistance is indeed a viable employee benefit, which may be growing in popularity. The 2023 Employee Benefits Survey published by SHRM, an international HR research and support organization, found that 34% of responding employers offer paid adoption leave. That’s an increase of six percentage points from the previous year’s survey results.

Tax Impact

Of course, a formal adoption assistance program would generally involve more than just a generous paid leave policy. It would also presumably provide financial assistance to help adoptive parents with the many expenses involved. Under the tax code, qualified adoption expenses that are directly related to the legal adoption of an eligible child may include:

• Reasonable and necessary adoption fees,
• Court costs,
• Attorneys’ fees, and
• Travel expenses.

Programs that cover qualified adoption expenses may be exempt from income tax withholding and payroll taxes, up to an annual limit. For 2025, the limit is $17,280 (up from $16,810 in 2024).

Employees must meet additional requirements to qualify for a tax exemption. Notably, the exemption isn’t available for expenses incurred in connection with the adoption of a child of an employee’s spouse. These expenses are subject to income tax withholding and payroll taxes — even if they’re below the annual limit. In addition, the employer must pay its share of payroll taxes on the taxable portion.

A Potentially Valued Venture

If properly administered and well-appreciated, an adoption assistance program can provide all the upsides of any valued benefit. You’ll likely improve employee retention — not only because many of your staff members apparently want an adoption assistance program, but also because you listened to their feedback and implemented one!

You may also attract job candidates who are drawn to a family-friendly, inclusivity-minded organization. And, we might add, adoption assistance programs tend to be relatively low-cost ventures compared with more expensive benefits such as health insurance and retirement plans. Work with your professional advisors, including your CPA, to explore the idea further.