Sure, good ole Oliver Wendell Holmes may have been right that taxes are the price we pay for a civilized society, but no one really likes taxes or likes having to think about them. Albert Einstein was supposed to have said that income taxes were the hardest thing in the world for him to understand—and that is coming from a guy who understood quantum physics!

We can’t necessarily make you like taxes, but we can help you understand them…or at least the Adoption Tax Credit part of taxes.

8 Facts You Must Know About the Adoption Tax Credit

  1. You qualify for the Adoption Tax Credit if you adopted a child and paid out-of-pocket expenses necessary to the adoption. (The credit is not available for stepparent adoptions or embryo donation/embryo adoption.)
  2. The credit is nonrefundable, which means it’s limited to your tax liability for the year.
  3. If you adopted a child with special needs from foster care, you need not have paid any out-of-pocket expenses in order to get the full Adoption Tax Credit. “Special needs” is determined by whether you receive a subsidy for the child from the state. No international adoption qualifies as Special Needs for the Adoption Tax Credit.
  4. If your employer has an adoption benefit program, you may be able to exclude that income as taxable. Both a tax credit and exclusion may be claimed for the same adoption, but cannot be claimed for the same expense.
  5. If you do not have enough tax liability to use up the credit in the first year, you can carry it over for up to 5 years.
  6. In case the IRS requests documentation, you will need to have the following documents:
    • The final Judgment of Adoption. (Can be from a US court or foreign court.)
    • A signed dated copy of your homestudy.
    • For foster care adoptions when you are claiming that the child has special needs, you will need a signed, dated copy of the Adoption Assistance Eligibility Determination, also known in some states as a Subsidy Agreement.
    • Proof of payment for all “qualified adoption expenses”. Proof can be in the form of a bank statement, credit cared bill, etc. (Not needed when adopting a child with special needs from foster care.)
  7. Save all documentation for 7 years in case the IRS decided to audit your returns or in case the Adoption Tax Credit become refundable again in the future.
  8. The Adoption Tax Credit cannot be used to offset self-employment taxes.

I’ll leave you with one more tax quote that made me laugh.

A tax loophole is “something that benefits the other guy. If it benefits you, it is tax reform.”

— Russell B. Long, U.S. Senator

Sources: Creating a Family Adoption Tax Credit Show 2017. Our guest experts on the Creating a Family Adoption Tax Credit 2017 Radio show were Josh Kroll, Adoption Subsidy Resource Center coordinator at NACAC; and Becky Wilmoth, an enrolled agent and Adoption Tax Credit Specialist.

Becky Wilmoth can be reached at or at

Josh Kroll can be reached at joshk@nacac.orgor 1-651-644-3036 ext. 15.

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