The COVID-19 pandemic has had unique specific impacts on issues related to the 2020 Adoption Tax Credit. To help us understand these issues, we’ve invited our guest expert and friend, Becky Wilmoth of Bill’s Tax Service, to share this guest post.

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2020 was a crazy, wild ride with a lot of unexpected impacts and changes for us all. If you are claiming the 2020 Adoption Tax Credit when you file your taxes this year, it’s essential to understand what impacts the COVID-19 pandemic may have on your claim.

In this blog, I will address:

  • QBOAD (Qualified Birth or Adoption Distribution) that was introduced with the SECURE ACT
  • Social Security Administration and Social Security Numbers
  • Economic Impact Payment (Stimulus), also known as the Recovery Rebate Credit on your tax return and how it affects your tax return if you had a newborn child or adoption in 2020

The SECURE Act and QBOADs

The SECURE Act has allowed taxpayers to take a qualified birth or adoption distribution (QBOAD) from any eligible retirement plan up to $5,000 without the 10% penalty if you are under 59 ½.

The QBOADs are limited to $5,000 per individual (not family) for each birth or adoption. QBOAD is an excellent benefit for any parent who has given birth or adopted.

Social Security Numbers and ATINs

The shutdown and limited access to the Social Security Administration for part of 2020 due to Covid-19 has impacted many families trying to get a social security number for their child.

For domestic adoptions that are not yet final, you can apply for an ATIN (Adoption Taxpayer Identification Number). However, you need to know that you only qualify to use it for the Adoption Tax Credit, Dependent Care Credit, and Other Dependent Credit. That’s a $500 credit versus the $2,000 Child Tax Credit. You will be losing $1,500.

Adoption Tax Credit: How to Find The Expert You Need

You cannot use an ATIN for Child Tax Credit and Additional Child Tax Credit. That means a $2,000 credit ($1,400 of which is refundable) that you will lose out on — you cannot go back and amend your tax return to recover it. So, it is better to wait until you can apply for a Social Security Number, even if you have to file an extension!

Your Stimulus Checks

So far, there have been two Economic Impact Payments sent out to millions of people for COVID-19 relief. These payments are called Recovery Rebate Credit on your 2020 federal tax return. The Economic Impact Payment plan calculated stimulus amounts based upon the prior year’s tax return.

Therefore, if you had a new child in the home through foster care, a newborn or adopted child, you would not have received the stimulus payment for them. But it will be reconciled on your tax return.

You must keep the Notice 1444 that you received from the Internal Revenue Service or be able to go back and look at the deposit amount you received. Your refund will be incorrect or delayed if the wrong amount for the first or second stimulus payment is entered on your tax return.

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Thank you, Becky, for this valuable and timely information to support the families who will file for the 2020 Adoption Tax Credit.

If you are looking for more information on how to maximize your 2020 Adoption Tax Credit, consider our online course at AdoptionEd.org.