Before one jumps to find the answer to this question, one should know, ” What is an adoption tax credit ?”. So, let me begin with that. As per the Internal Revenue Code, anyone adopting a child, whether via public foster care, domestic private adoption, or international adoption, shall get a tax credit for qualified adoption expenses on such adoption.
This tax benefit to an adopting parent is known as the Adoption Tax Credit. For 2024, the maximum tax credit for adoption per child is $16,810. The adoption credit can be used to offset both your regular tax liability and Alternate Minimum Tax (AMT).
Who qualifies for the child adoption tax credit?
Most parents who desire to adopt will qualify for this tax credit except in the following two situations.
- The adoptive parent’s modified Adjusted Gross Income (MAGI) is $292,150 because the tax credit starts phasing out at MAGI of $252,150 and phases out entirely at an income of $292,150.
- The adoption tax credit is also not available for adoptions of stepchildren.
What about the adoption of a “special needs” child?
When a state’s welfare agency determines that the child cannot be returned to their parent’s home and that the child probably will not be adoptable without the assistance provided to the adoptive family, such a child is considered a “special needs “child. The child must meet all three of the following characteristics:
- The child was a citizen or resident of the United States or its possessions at the time the adoption effort began (US child).
- A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or herparents’ home.
- The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
- The child’s ethnic background and age,
- Whether the child is a member of a minority or sibling group, and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.”
Therefore, Tax law provides that a person adopting such a child will be eligible to claim maximum tax credit without actual out-of-pocket expenses.
Is child adoption expense allowed as a tax deduction?
Yes, apart from the credit, the IRC provides that the adopting person can deduct the adoption expense from his income. Types of expenses that can be Qualified adoption expenses include:
- Adoption agency fees for facilitating the child adoption process
- Attorney fees
- All court costs you incur
- Any re-adoption expenses that relate to the adoption of a foreign child.
- The travel expenses you incur for the adoption of the child, including the cost of food and hotels when traveling away from home.
- Even the qualified adoption expenses paid or incurred in an unsuccessful attempt to adopt a U.S. child where no later adoption is successful are eligible for deduction.
However, certain types of expenses may not be allowed to be considered as adoption expense like
- Any amount that the employer reimburses on tour,
- Fees you pay to a surrogate mother or
- Any costs that relate to the adoption of your spouse’s child.
What if my employer reimburses adoption expenses?
Even in that case, you will be able to deduct qualified adoption expenses paid or reimbursed by an employer from your income up to the same limit as the tax credit. However, you can not claim both the exclusion and credit for the same expenses.
Will the adoption tax credit ever be refundable again?
The answer is NO. Whatever adoption tax credit remains after setting off with your tax liability is non-refundable. However, you can carry forward the tax credit balance for up to five years.
How to claim an adoption tax credit?
The taxpayer must complete IRS Form 8839 and submit it with their Form 1040 when they file their 2020 taxes. The taxpayer must include the child’s name, age, and taxpayer identification number (TIN) on the return.
If a child was adopted through an “authorized placement agency”, adopting parents may apply for a temporary (two-year) adoption taxpayer identification number (ATIN) for the child (unless the child is an alien eligible to get an ITIN) to satisfy filing requirements.
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