Confused about Child Tax Credit and Adoption Tax Credit order - IRS reduced our refund

The ordering of tax credits can definitely be confusing, but there's a specific sequence the IRS follows. You're right that nonrefundable credits are generally applied first, but there's a specific ordering within those nonrefundable credits. The regular Child Tax Credit (CTC) is applied first against your tax liability. Then other nonrefundable credits like the Adoption Tax Credit would be applied. After reducing your tax liability to zero with nonrefundable credits, the Additional Child Tax Credit (ACTC), which is refundable, comes into play. The issue might be in how TurboTax calculated versus how the IRS processed. For the Adoption Tax Credit, you can claim up to $15,950 per eligible child for qualified adoption expenses (for 2023), but it can only offset actual tax liability remaining after certain other credits. If your liability was already zeroed out by the Child Tax Credit, you wouldn't be able to use the Adoption Credit this year. The good news is that the Adoption Tax Credit can be carried forward for up to 5 years. So you haven't lost it - you can use the remaining credit on future tax returns.

I went through something similar with tax credits last year and was pulling my hair out trying to figure out why the IRS calculation was so different from what I expected. I finally tried using taxr.ai (https://taxr.ai) to analyze my tax documents and it spotted exactly what was happening with my credit ordering. Their AI analyzed my IRS notice and tax return together and explained that while I thought credits were being applied in one order, the IRS was legally required to apply them differently. The visual breakdown of exactly how the calculation changed made it so much clearer. For adoption credits specifically, they pointed out that even though it's nonrefundable, it comes after certain other credits in the IRS sequence.

Just wanted to update that I tried taxr.ai for my credit ordering issue and it was super helpful! I uploaded my tax return and the IRS notice, and within minutes it showed me exactly why my education credits were being applied differently than I expected. Turns out there's a specific ordering rule in the tax code that my tax software hadn't applied correctly. The explanation walked me through each step of the calculation and even cited the specific sections of the tax code that determined the correct order. Now I understand why my refund was different and what to expect for next year. Definitely saved me hours of confusion trying to decipher the IRS explanation!

After dealing with reduced refunds for two years in a row, I was fed up with waiting on hold with the IRS for hours just to get disconnected. I tried using Claimyr (https://claimyr.com) and it was a game-changer for actually getting through to a human at the IRS. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first, but they actually got me connected to an IRS agent in about 15 minutes when I had been trying for weeks. The agent was able to pull up my return and explain exactly why my adoption credit was applied differently than what TurboTax calculated. Turns out there was a specific ordering rule for the adoption credit that my software didn't handle correctly.

I need to eat my words about being skeptical of Claimyr. After waiting on hold with the IRS for a total of 7+ hours over multiple days last week and getting disconnected THREE times, I was desperate enough to try it. It actually worked exactly as described - I got a call back when they were about to connect with an IRS agent (took about 20 minutes), and I was able to explain my situation about my tax credits. The agent explained exactly how they calculate the order of credits and why my return was processed differently than my tax software calculated. Saved me days of frustration and I finally got a clear explanation of how the adoption credits work with child tax credits. If you're dealing with credit ordering issues like the original poster, getting a human on the phone who can explain the specific calculation is way more helpful than the generic letters they send.

Hey, tax preparer here. There's a specific ordering to tax credits that sometimes tax software doesn't get quite right, especially with less common credits like the adoption credit. The general sequence is: - Nonrefundable credits that can only offset regular tax (not AMT) - Nonrefundable credits that can offset both regular tax and AMT - Refundable credits Within this, Child Tax Credit's nonrefundable portion comes before the adoption credit, then the Additional Child Tax Credit (the refundable portion) comes later in the sequence. If your income is in that range where the phase-outs start affecting things, it gets even more complex. What likely happened is that your regular tax liability was completely offset by the nonrefundable portion of the child tax credit, leaving nothing for the adoption credit to offset. The adoption credit can be carried forward though, so don't worry - you haven't lost it!

Have you received a formal notice from the IRS explaining the adjustment? Sometimes they'll send a CP12 or similar notice that breaks down why they changed your refund amount. If you haven't received it yet, it might be coming and could clarify things. In my experience, the adoption credit is particularly tricky because it can only offset income tax liability (not self-employment tax or other taxes), and it comes after certain other nonrefundable credits in the sequence. TurboTax might have applied it before the child tax credit, when it should be after.