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New Addition: Adoption Tax Credits

Updated for Tax Year 2015


Would-be adoptive parents may spend up to $30,000 before all requirements are met and all fees are paid. However, an available tax credit offers some relief to many, if not most, adoptive parents.

The adoption process can be extremely cumbersome and expensive. According to the Evan B. Donaldson Adoption Institute, a national not-for-profit organization devoted to improving adoption policy and practice in the United States, would-be adoptive parents may spend up to $30,000 before all requirements are met and all fees are paid.

An available tax credit, however, offers some relief to many, if not most, adoptive parents.

Most parents are adopting children because they love children, not because they get a tax credit.

- Brian Solik, New Jersey-based financial adviser and adoptive parent

The adoption tax credit

The IRS consolidates a majority of the reporting for adoption-related expenses on Form 8839, Qualified Adoption Expenses. Filers must include every qualified expense from the tax year in question on that form to be eligible for the non-refundable adoption tax credit. For 2015, the maximum credit adoptive parents are granted is $13,400 per eligible child.

An eligible child is defined as any person who is under the age of 18 or any person who -- regardless of age -- is physically or mentally unable to take care of him- or herself.

“Most parents are adopting children because they love children -- not because they get a tax credit,” said Brian Solik, a New Jersey-based financial adviser who is the father of two adopted children. “So, many of them may not even be aware of this credit.”

According to Solik, any reasonable and necessary expenses directly related to the legal adoption of any child are eligible for reimbursement or refund through the adoption tax credit. Those expenses include court costs, attorney fees, home studies and any traveling expenses related to the adoption. The credit is a non-refundable credit which means that it can lower your tax bill but will not produce a refund due to the credit.

But, he adds, adoptive parents should not automatically assume they qualify. He says the ceiling amount of the adoption credit is available only if you spent that amount in qualified adoption expenses that were not reimbursed by an employer or state agency or if the adopted person is one with special needs.

If you spent less than the cap, Solik says, you will receive a credit for only for the amount you spent.

If your modified adjusted gross income is more than $201,010, however, your credit is reduced until modified adjusted gross income is $241,010 or more, when the credit is no longer available.

Special needs credit

Couples and individuals adopting a child whom the federal government considers one with special needs may claim the maximum amount of the adoption tax credit regardless of how much they spent for adoption-related expenses.

Jeremy Rospierski, an accounts receivable coordinator for Lutheran Social Services of Michigan, is the adoptive father of a 1-year-old child.

A child is classified as being one with special needs if each of three conditions exist:

  • The child is a citizen or resident of the United States;
  • The child should not, or could not, be returned to the birth parent’s home; and
  • The child probably would not have been adopted unless assistance was provided.

 Solik adds that parents should review their adoption paperwork and also try checking with their state agency or social worker if they aren’t sure if the child qualifies in the special needs category.

“This was a surprise to us, so it’s best to check,” he said. “Once they are adopted and you have claimed your tax credit for that year, there are no special federal tax benefits available to adoptive parents. Your children are treated as your children from that point on.”

Unsuccessful adoptions

If you were on the path to becoming an adoptive parent but were derailed for whatever reason, Rospierski says, you may claim expenses for an unsuccessful attempt to adopt an U.S. child. You should treat them in the same manner as expenses paid for adoptions not final by the end of the year.

Employer-provided adoption benefits

A taxpayer may be eligible for employer-provided adoption benefits. According to the IRS, employer-provided adoption benefits are amounts your employer paid for qualified adoption-related expenses to you directly or to a third party on your behalf. You may exclude these benefits from your taxable income up to $13,140 for 2015. But you cannot use the same expenses for the exclusion as you do for the credit. You can, however, exclude up to the maximum allowable and then take the maximum credit for additional unreimbursed expenses.

Paper: the only option

While the digital age has afforded the ability to file income taxes with just the click of a button, Rospierski says electronic filing is not an option for adoptive parents.

“You will need a copy of the adoption certificate signed by the judge,” he said. “This should show the name of the child and the adoptive parents along with the seal of the court.”

Rospierski says individuals should be expected to substantiate any expenses they’re hoping to claim for the adoption credit and if you’re claiming a credit for adopting a special needs child, Rospierski says, you must send the IRS a copy of the determination of special needs from your state. That can be a signed adoption assistance or subsidy agreement by the state, a state-issued or county-issued certificate of verification that the child has special needs, or a certificate that the child is approved to receive adoption assistance.

Delayed refunds

Because Form 8839 is not an accepted form for electronically filed returns , experts say, expect the processing of your income tax return to take longer. Jeremy Rospierski, accounts receivable coordinator for Lutheran Social Services of Michigan and the father of an adopted child, said it can take five to eight weeks.

“It takes one to two weeks for a refund to be sent when it is electronically filed,” he says. “For that reason, my family filed our 2015 return electronically without the adoption credit.”

He then used the old-fashioned paperwork method to file an amendment to the return in order to take the adoption tax credit. While that's legal, Rospierski said, it may raise some red flags at the IRS.

“Keep in mind when you file by paper or you file an amendment the IRS tends to scrutinize those returns a little more closely," he said. "You will want to make sure that everything is legitimate and in order.”

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