The federal Adoption Tax Credit helps adoptive families cover their tax liability and lower or pay the tax dollars they owe when filing their annual taxes. There have been many changes to the Adoption Tax Credit over the years. For example, it was a tax refund until 2011 rather than a credit applied against your tax liability. It also (historically) increases yearly, in pace with inflation adjustments.
Many adoptive families misunderstand or miss the Adoption Tax Credit. Knowing the answers to these Frequently Asked Questions (FAQs) will help you understand your claim and navigate the filing process to use this credit.
The Adoption Tax Credit for adoptions claimed in 2023 federal taxes is $ 15,950.
Taxpayers who adopted via US foster care, private domestic adoption, or international adoption can claim the credit when they file their 2023 federal taxes. This includes unmarried partners. However, it excludes those who adopted an embryo (embryo donation) and those who adopted a spouse’s child, whether heterosexual or same-sex couple, as a stepparent.
The Adoption Tax Credit applies to each qualifying child. If you adopted three children or more within the same year, additional forms are required to realize the full scope of the credit.
Any necessary and reasonable expense for adoption will qualify when claiming the Adoption Tax Credit. This includes adoption fees, legal fees, court costs, and some travel expenses. It can also include additional monetary requirements by the orphanage when you adopt internationally. Keep an itemized list of expenses, when and how you pay them.
Qualifying adoption expenses do NOT include expenses paid to an expectant woman or birth mother (as is common in domestic infant adoption).
You can claim the federal Adoption Tax Credit in the year the child’s adoption finalizes or in the year after the expenses are paid. When you adopt internationally (depending on the sending countries’ laws about finalization), you may need to wait until the re-adoption in the US is final.
Most children adopted from the US foster care system meet the IRS criteria to be considered a special needs adoption. However, you must have an adoption assistance agreement that shows the child receives a monetary payment or subsidy, Medicaid, or reimbursement of non-recurring adoption expenses.
International adoptees are not considered special needs for this federal tax credit.
For more information about special needs adoption, contact Josh Kroll at Families Rising, formerly the North American Council on Adoptable Children. His email is joshk@nacac.org. His phone number is 1-800-470-6665, extension 115.
You can reclaim these expenses the year after paying them using IRS form 8839. In the name area of the form, enter “not final” or “failed.” Note that if you have a successful adoption following a failed adoption, you must reduce the amount you claim by the amount of credit you previously claimed for the failed adoption.
Yes, there is a phase-out range if your Adjusted Gross Income exceeds $239,231. If your income is higher than $279,230, you cannot claim the credit.
Yes, you can carry over the credit into the next year for up to 5 years or until it’s gone. However, using up as much of the credit as quickly as possible would be best. Please note that you are responsible for keeping track of this, as the IRS will not do it for you.
Yes. You can amend your return within three years of the original filing date.
There are a few ways to handle this if you don’t have the adoptee’s Social Security Number (SSN):
When adopting an older child, and you cannot change their number, please consider getting an Identity Protection PIN from the IRS so no one else can claim them on their taxes.
Here are a few resources to help you find a knowledgeable tax professional:
You do not have to use an adoption tax specialist who is local to you. Many tax preparers have secure internet support and can help you through virtual meetings. Be sure to include that in your questions when shopping around.
Few families can afford the total cost of adoption from their household budgets. The Adoption Tax Credit is an essential financial resource that supports adoptive families who take advantage of it. Consult with your tax professional to determine when and how to maximize this federal credit. Remember to save all the documentation of your adoption-related expenses and filings in case of an IRS review.
If you want to join the voices of other concerned citizens working to return the Adoption Tax Credit to refund status, visit the National Council for Adoption Advocacy page.
Image Credits: Leeloo The First; Anna Tarazevich; Anna Shvets
