The US Federal Income Tax Credit for Adoption

Submitted by PeterAKenny on January 15, 2019

The US government offers a one-time non-refundable tax credit to adopting parents for expenses incurred in the process. The child must be under 18 at the time of adoption (or unable to take care of him or herself) and other than a stepchild.

Most Indiana foster-to-adopt parents receive a post-adoption subsidy paid by the state. If that is the case, under the federal tax code, your child is considered to have “special needs.” This means that you are not required to document your expenses to claim the credit. You can claim it even if you had no expenses. However, you must owe taxes in order to receive a credit.

The maximum amount has increased to $13,810 per child in 2018. Currently, the credit is non-refundable. This means that you must claim the credit up to the maximum amount allowed for the year you adopt. If your tax obligation is less than the credit allows, you may continue to claim the difference as a credit over the next five years.

All other eligible adoptions, including foster children who do not receive post-adoption assistance benefits, are not considered “special needs” for purposes of the adoption tax credit. In those cases, parents are required to document qualified legitimate expenses.

How much you will benefit from the credit depends on the amount of federal income tax you owe the US government. Data shows that families with continuous adjusted gross incomes of less than $30,000 are not likely to benefit from the adoption tax credit because they do not owe any federal taxes. For those with higher incomes, the credit phases out. In 2018, those with adjusted gross incomes above $247,140 could not claim any credit. To claim the adoption credit, complete Form 8839 (Qualified Adoption Expenses), and attach the form to your Form 1040 (U.S. Individual Income Tax Return.) Since for certain years in the past, the tax credit was refundable, claims can be filed for the tax credit for adoptions finalized dating back to 2012.

Consult with your tax preparer for more details on the adoption federal income tax credit. Since the tax credit was refundable at times in the past, he or she may help you recover some monies. If you do your own taxes, check with the IRS code on the adoption tax credit or go to https://www.nacac.org.

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