There are many types of financial assistance available to those wanting to adopt a child. The following information details many of the available programs and adoption resources.
Federal Tax Credit Information
The legislation to avoid the fiscal cliff (the American Taxpayer Relief Act of 2012, signed into law on January 2) included a provision that made the adoption tax credit permanent. Unfortunately it did not make the adoption credit refundable, so it will only benefit those adoptive families who have federal income tax liability. The adoption credit is calculated and claimed on Form 8839 Qualified Adoption Expenses.
For 2016, the maximum adoption credit and exclusion will be $13,460. The credit will begin to phase out for families with modified adjusted gross incomes above $201,920 and the credit will go away completely for those with incomes above around $241,920.
For 2016 and beyond, the credit will remain flat for special needs adoptions, meaning that those who adopt children from the U.S. who receive adoption assistance/adoption subsidy benefits can claim the maximum credit regardless of their expenses. For other adoptions (except for step-parent adoptions), parents can claim the credit based on their qualified adoption expenses.
The credit is not refundable for 2016 or future years, but the credit can be carried forward for up to five additional years. NACAC (North American Council on Adoptable Children) will continue to advocate for refundability in the future.
For more information please contact your tax professional. You may also visit: http://www.nacac.org/taxcredit/taxcredit.html for information on this year’s or previous year’s adoption tax credits.
There is also an Arizona Adoption Expense Deduction that you may qualify for based on your adoption expenses.
Disclaimer: The above information is meant to serve as a basic understanding of the federal adoption tax credit and Arizona adoption expense deduction. This summary does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.
What are considered “qualifying adoption expenses”?
The Internal Revenue Service outlines “qualifying adoption expenses” as “reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other adoption expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.”
Who should I contact for clarification on my particular tax credit scenario?
Contact the Internal Revenue Service at 800.829.1040 with your specific questions, or consult a tax professional.
PLEASE NOTE: This information is provided as a general guideline on the new provisions of the adoption tax credit. It should not be used as a definitive source of information for individual case scenarios.
Employee Benefits Programs
Many companies offer some type of adoption benefits to their employees. These benefits, depending on your company, may include:
Direct reimbursement in the range of $2,000 to $10,000 upon placement
Even if your employer does not currently offer adoption benefits, ask about their availability. You may be able to convince your company to begin offering them. Your employer may also have an Employee Assistance Program (EAP). This benefit helps employees deal with unusual personal situations or problems.
While it’s far from ideal to borrow money, adoptive families may find a loan necessary. In some cases you may need a loan just until you receive your tax credit or are reimbursed by your employer. Possible loan sources include:
Private Grant and Special Loan Programs: Adoption loans, both home equity and unsecured, may be obtained through the National Adoption Foundation (100 Mill Plain Road, Danbury, CT 06811; 201.791.3811) They also award grants to needy adoptive parents.
Bank Loans: Some banks offer low-interest loans or credit lines for adoptive parents.