U.S. Supreme Court Justice Oliver Wendell Holmes may have been right that taxes are the price we pay for a civilized society, but does anyone really like the idea of taxes or preparing to file theirs? And apparently, Albert Einstein said income taxes were the hardest thing in the world to understand! Indeed, if the father of quantum physics struggled, it’s understandable that we Average Joes might also. We can’t necessarily explain the entire U.S. tax code and its intricacies. But we can help you prepare for and better understand the 2024 Adoption Tax Credit.

8 Quick Facts About the Adoption Tax Credit

Fact #1

You qualify for the Adoption Tax Credit if you adopted a child and paid out-of-pocket expenses necessary for the adoption. (The credit is unavailable for stepparent adoption or embryo donation/adoption.)

Fact #2

The Adoption Tax Credit is still non-refundable, which means it’s limited to your tax liability for the year.

Fact #3

If you adopted a child with special needs from foster care, you don’t have to have paid any out-of-pocket expenses to get the full 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.

Fact #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 not for the same expense.

Fact #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.

Download a free guide to talking to your kids about adoption!

Fact #6

It’s always wise to keep the following documents accessible in case the IRS requests documentation:

  • The final Judgment of Adoption (can be from a US court or foreign court)
  • A signed, dated copy of your home study.
  • A signed, dated copy of the Adoption Assistance Eligibility Determination, also known in some states as a Subsidy Agreement, if you adopted from foster care and are claiming the child has special needs.
  • Proof of payment for all “qualified adoption expenses” (acceptable in the form of a bank statement, credit card bill, receipts, etc. (Note: these are not required for foster care special needs adoptions.)

Fact #7

Save all documentation for seven years in case the IRS decides to audit your returns or this credit becomes refundable again.

Fact #8

The Adoption Tax Credit cannot be used to offset self-employment taxes.

Source: CreatingaFamily.org Adoption Tax Credit 2024. — Our guests for this annual interview were Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit specialist, and Josh Kroll, the Adoption Tax Credit specialist at Families Rising. They are the two most knowledgeable people we know about the federal Adoption Tax Credit. We are grateful for their guidance and how they support the families in our community.

For more in-depth information that will prepare you well to file and maximize your claim when you file your federal taxes, visit the Adoption Tax Credit resource page.

Image Credits: Canva open stock image; Mikhail Nilov