Adoption Tax Credit
The Federal Tax Credit for Adopting a Child
The Adoption Credit is refundable tax credit designed to help parents with the expenses involved in adopting a qualified child (including a child with special needs). A qualifying child is any child under 18 or a child that lacks the ability to care for him or herself. The credit is subtracted from your federal tax liability and, for Tax Year 2011, is refundable if you owe no tax.
The Adoption Tax Credit is intended to reimburse many of the various expenses incurred while adopting a child. Any expenses that were previously reimbursed, such as by your employer, may not be counted towards the credit. In addition to the Adoption Credit, there may be qualified expenses paid by your employer that can also be excluded from your taxable income.
Qualifying Adoption Expenses, Qualified Child
Qualifying expenses include adoption fees, court costs, attorney fees, traveling expenses (including meals and lodging while away from home), and other expenses directly related to the adoption of a qualified child.
If the adoption process is not completed by the time you file your tax return, the child must be a U.S. citizen or resident in order to qualify for the tax credit. If the adoption becomes final, the adoption credit can be taken for non-U.S. citizens or foreign residents. If the child has special needs and the state determines that the child would not be adopted without assistance, then a taxpayer may be eligible for an increased credit.
How Much is the Adoption Credit?
The maximum amount of the Adoption Credit to $13,360 per qualifying child for expenses incurred in 2011. For 2010 and 2011, the credit is fully refundable and any credit balance remaining after your tax liability has been reduced to $0 will be paid to you in your tax refund.
The credit for qualifying adoption expenses is subject to a dollar limit and an income limit. The income limit is based on your adjusted gross income (AGI). If your income is above the AGI limit, it may be reduced by a certain percentage or, if above the maximum limit, the credit may be eliminated in its entirety. Due to The Affordable Care Act, income limits for the Adoption Credit will be adjusted for inflation.
Claiming the Adoption Tax Credit
The Adoption Tax Credit may be claimed on a tax return by any qualifying taxpayer with a filing status of Married, Widow(er), or Head-of-Household by using Form 8839, Qualified Adoption Expenses. If you are married, you must generally file a joint return to claim the adoption credit. If your filing status is Married Filing Separately, you can take the credit only if you meet special requirements.
When you prepare your tax return on efile.com, the eFile software will automatically select and complete Form 8839 for you.
Due to increased documentation requirements introduced by the Affordable Care Act (you must include one or more adoption-related documents with your tax return), taxpayers claiming the Adoption Tax Credit will have to file their 2010 Tax Returns by mail. You may still use efile.com to prepare and print your return, but you will need to mail a paper copy to the IRS.
See what other tax credits and tax deductions you may qualify for.