The Adoption Tax Credit
The adoption Credit is a non-refundable tax credit which means that the amount of the tax credit is limited to the taxes due on the current tax year return. Any tax credit that would exceed the tax liability for the current year, may be carried forward for the maximum of five years. For example, if your tax credit was $2,000 and you owed $1,500 in taxes, you could apply the remaining $500 on your next year's return, assuming you had a tax liability as well.
Adoption benefits can include the adoption tax credit for qualified adoption expenses that occurred to adopt a qualified child ( who is under the age of 18 or is physically or mentally not able to care for themselves). In addition, employer based and provided adoption assistance could be excluded from the income. Once the adoption is finalized, you will be able to claim your adopted child as a dependent.
The adoption tax credit is designed to help parents with the expenses related to adopting a child under the age of 18 (including a child with special needs). You can claim this tax credit if you adopt a United States Citizen child or if you adopt a child from another country. Your adoption expenses will be included on Form 8839 when you eFileIT via eFile.com the credit will automatically be calculated and reported for you on your eFile.com tax return.
Adoption Tax Credit Limit by Tax Year
MAGI phaseout starts at $252,150 and ends at $292,150
MAGI phaseout starts at $239,230 and ends at $279,230
MAGI phaseout starts at $223,410 and ends at $263,410
MAGI phaseout threshold of $216,660 to $246,660
MAGI phaseout threshold of $214,520 to $254,520
Adopting a Child
You can generally claim the nonrefundable tax credit for any child under 18 who you adopt and pay certain qualifying expenses for. This can be if you are single, married, or unmarried and adopt a step-child (stepparent adoption). This credit is per child, meaning that if you adopt multiple children and pay qualifying expenses for both of them, you may be able to claim $14,440 per child. There is not limit on the number of children the credit may be applied to.
You can qualify for the Adoption Tax Credit if one or more of the following statements are true:
- The child is a U.S. citizen or resident (or a U.S. citizen with special needs) on or before December 31 of the tax year.
- If the adoption becomes final, you claim the credit for a non U.S. citizen or foreign resident. If the child has special needs and the state determines that the child would not be adopted without assistance, then you may be eligible for an increased tax credit.
- You paid qualified adoption expenses (see below for examples) related to adopting a U.S. child, including children with special needs.
- You adopted a U.S. child with special needs and the adoption became final in 2023. You might be able to claim the credit even if you or your employer did not pay any qualified adoption expenses - details below.
- A registered domestic partner may pay the adoption expenses in some cases. For example, if both parents live in a state that allows a same-sex second parent or co-parent to adopt their partner's child, these may also be considered qualified expenses.
- You paid adoption expenses connected to the adoption of a foreign child in either this year or a prior year and the adoption became final the following year, or this year and the adoption becomes final in the same year.
- You have an adoption credit carry forward up to five years.
Qualified Adoption Expenses
Qualifying expenses include the following:
- Court costs and attorney fees, reasonable and necessary adoption fees, traveling (including meals, lodging).
- Additional expenses that are directly related to the adoption process and for the principal purpose of the legal adoption of the eligible child.
- A qualified adoption expense includes also expenses paid before an eligible child has been identified. Fees for a home study paid for by adoptive parents might qualify as adoption expenses even if the home study occurred prior to the adoption.
- Expenses paid by a registered domestic partner who lives or resides in a state that recognizes a same-sex second parent or co-parent to adopt his or her partner's child, as long as those expenses otherwise qualify for the credit, do qualify as adoption expenses.
Expenses do not include:
- Any expenses you received under any federal, state, or local programs
- Those that violate federal or state law
- Those that carry out a surrogate parenting arrangement
- Expenses by a taxpayer to adopt a qualified child from the taxpayer's spouse
- Those reimbursed by your employer
- Those allowed as a tax deduction or tax credit under any other federal income tax law or other provision.
Any expenses that were previously reimbursed by your employer may not be counted towards the credit. However, there may be qualified expenses paid by your employer that can be excluded from your taxable income.
You can also claim the Adoption Credit for most foreign or domestic adoptions. However, the timing rules for which expenses can be claimed vary between domestic and foreign adoptions:
- Domestic Adoption - Qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized).
- Foreign Adoption - Qualified adoption expenses paid before and during the year are allowable as a credit for the year when the adoption becomes final.
For each case, once the adoption becomes final, expenses paid during of after the year it was finalized are allowed for the year the payments were made.
Example: A parent pays adoption expenses over the last three years (this year and two prior years) and finalizes the adoption this year. As a domestic adoption, the parent would claim expenses each year for the prior year until the adoption is final which is when they would claim the current year expenses. As a foreign adoption, they would claim the expenses over all three years for the year in which the adoption became final.
Adopting a Special Needs Child
If you adopt a U.S. child who has been determined to have special needs by a state, then you are generally eligible for the maximum amount of the credit. Most importantly, you may be eligible to claim the credit even if your employer or you did not pay any qualified expenses for the adoption. There are certain criteria to meet:
- The child is either a citizen or resident of the United States at least from the time when the adoption process began
- A state has determined that the child cannot or should not be returned to their parent's home
- The state determined that the child likely would not be adoptable without any assistance provided to the adopting family.
How to Claim the Adoption Tax Credit
When you start a return eFile tax app calculates the credit based on the data entered by the taxpayer.
For your information, the income limitation does apply to the credit and the exclusion separately, and a taxpayer may be able to claim both the credit and the exclusion for qualified expenses. Any allowable exclusion must be claimed before any allowable credit. IN addition, qualified adoption expenses used for the exclusion do reduce the amount of qualified adoption expenses available for the tax credit. Thus, a taxpayer can't claim both a credit and an exclusion for the same expenses.
The adoption tax credit can be claimed on a tax return by any qualifying taxpayer with a filing status of Married Filing Joint, Qualifying Widow(er), or Head Of Household status. When you prepare and e-File your tax return on eFile.com, you can enter your adoption expenses and we will automatically prepare and report your Adoption Tax Credit via Form 8839 when you on eFileIT and it will be e-Filed with your return. If you are married, you must file a joint return to claim the adoption credit. If you filed using the filing status of Married Filing Separately, you can take the credit only if you amend your return and change it to the Married Filing Joint status in the years that you wish to claim the credit.
See what other tax credits and tax deductions you might qualify to claim on your tax return:
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