How much do eggs cost in your town? It’s a tough economy for many Americans who are concerned about inflation, groceries, housing costs, and other current events that trickle down to our wallets. On top of that, it’s time to start thinking about filing 2024 federal and state taxes. If you have adopted a child (or children!) in the last few years, we want to help you maximize the Adoption Tax Credit in your 2024 personal taxes. We hope this information helps ease some of the financial burden your family may be experiencing.
The Adoption Tax Credit for 2024 has increased to $16,810 per child. The Adoption Tax Credit is still NOT refundable, which means you can only use the credit if you have a federal income tax liability.
Once again, our friend, Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit Specialist at Bill’s Tax Service, provides this guide to understanding the Adoption Tax Credit. She covers the necessary details for claiming and maximizing your 2024 tax filing credit. Please share it with others in your community who have recently adopted too!
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Adoption Tax Credit Guide: 2024
Families must understand that the Adoption Tax Credit can be an essential tool when they adopt, whether through the foster care system, domestically or internationally. Adoption continues to change around the world rapidly. International adoptions continue to decrease, and the number of children in foster care is about 370,000. The one constant throughout the changing adoption landscape is the need for families to understand the financial resources available to those considering adoption or in the process of adopting. The federal Adoption Tax Credit is one of the most significant financial resources they can access.
Who can apply for the Adoption Tax Credit?
An adoptive family can apply the Adoption Tax Credit toward their federal tax liability when they file their 2024 tax return. This means the applied credit can reduce what they owe in federal income taxes for the year. It is not a refundable tax credit. However, it’s still available, permanent, and a great credit at $16,810 per child. (This is an increase from the 2023 credit of $15,950.)
*Please note: the Adoption Tax Credit will not cover self-employment tax, early pension distribution penalty, or first-time homebuyer payback.
How can we qualify for the Adoption Tax Credit 2024?
You qualify for the Adoption Tax Credit if you adopted a child (except your spouse’s child) and paid out-of-pocket expenses relating to that adoption. The tax credit amount you qualify for directly relates to how much you spent on those adoption-related expenses.
Income can also be excluded as taxable through an employer-provided adoption benefits program. Both a credit and an exclusion may be claimed for the same adoption. However, both cannot be claimed for the same expenses.
What expenses are covered under the Adoption Tax Credit?
Qualified Adoption Expenses are allowed under the Adoption Tax Credit and include any expenses necessary for the adoption. A few examples of qualified expenses include:
- court fees
- home study
- lawyer fees
- medical examinations/physicals
- travel expenses (meals, lodging, airline, gas)
- agency fees
- dossier fees
- any other fees that are directly related to the adoption
The most asked question is whether the living expenses of the expectant woman paid by the prospective adoptive parents in domestic infant adoptions are qualified adoption expenses under the Adoption Tax Credit. They are not.
A good rule of thumb when determining what adoption expenses to include for the Adoption Tax Credit is to use those expenses you know are covered. Most adoptions, other than from foster care, will exceed the amount of the credit, so choose the expenses that are clearly considered “qualified adoption expenses” when filing.
When can we apply for the Adoption Tax Credit?
International and foster care adoptions must be finalized before you can apply for the Adoption Tax Credit.
Expenses for domestic (infant) adoptions that are not yet final can be taken the year after the expenses are paid, or you can wait until the adoption is final.
How does the Adoption Tax Credit work?
Line 47 of the federal 1040 form shows your tax liability. The difference between your tax liability and your federal withholding is what you get as a refund or what you owe the federal government when you do your tax return.
The Adoption Tax Credit comes in on Line 55 (Other Credits) from Form 8839 and covers your tax liability up to $16,810 per child for 2024. You will get your withholding back (if the tax liability is less than the maximum credit amount), and the child tax credit drops to an additional child tax credit (if you qualify).
If you do not use all the credit in the first year, you can carry it forward for up to 5 years.
What about special needs adoptions?
If you adopt a child with special needs through foster care, you may be entitled to claim the full amount of the adoption credit even if you did not have expenses. Each state has different criteria that qualify a child as “special needs.”
Where do I get a special needs declaration?
The special needs declaration must come from the state where the adoption was finalized. Your child must have a signed adoption Subsidy Agreement with the state to qualify as a special needs adoption. Some states call it the Adoption Eligibility Assistance Determination.
What about “special needs” via international adoption?
Unfortunately, no international adoption is considered special needs for IRS purposes. Therefore, the Adoption Tax Credit will only be for your qualified adoption expenses.
The Documentation for the 2024 Adoption Tax Credit
You will need to have the following paperwork ready to document your Adoption Tax Credit filing:
- Final Judgment of Adoption (all adoptions)
- Adoption Assistance Eligibility Determination (Subsidy Agreement) that declares the child’s special needs if claiming credit for a child declared special needs by your state through foster care (foster adoptions)
- A home study/placement agreement completed by an authorized placement agency (all adoptions except foster)
- All documentation of paid qualified expenses (all adoptions except foster)
- All documents must be signed and dated for all adoptions. The IRS will not accept any Home study/Placement agreement, Judgment of Adoption, or Subsidy agreement/Eligibility agreement without it being signed and dated by the proper authorities.
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Strengthening and Supporting Your Transracial Adoptee
Do You Need More Information?
CreatingaFamily.org also offers an Adoption Tax Credit resource page, where we have curated the most updated, relevant resources to help you navigate the process of filing your claim.
The Adoption Tax Credit Online Course
For more detailed information about the Adoption Tax Credit, consider the CreatingaFamilyEd.org online course, Adoption Tax Credit 2024. This online, downloadable course is 1 hour long. It offers a Certificate of Completion when you pass the quiz at the end with 80%. Check with your agency or caseworker to see if this course can count toward fulfilling education requirements.
Here is a brief overview of some key points covered in the CreatingaFamilyEd.org Adoption Tax Credit 2024 online course:
- What is the Adoption Tax Credit for adoption being claimed on 2024 federal taxes?
- What type of adoptions are included or excluded?
- Are kinship adoptions covered? Are kinship guardianship arrangements covered? What if the child was never involved with the foster care system?
- Can you get credit for each adoption you complete even if completed in the same year? What about adopting siblings at the same time?
- What is a Qualified Adoption Expense for the Adoption Tax Credit 2024?
- How does the Adoption Tax Credit differ for adoptions from foster care? What does the IRS accept as proof of “special needs”?
- Can you reclaim your expenses for an attempted adoption that did not result in a placement (failed adoption)? How?
- What income level (Modified Adjusted Gross Income) is excluded from claiming the Adoption Tax Credit in 2024?
- How long can the credit be carried over? What if you didn’t claim the Adoption Tax Credit when eligible? Is the Adoption Tax Credit something you can amend your tax return for?
- Will the Adoption Tax Credit offset self-employment tax?
- How does the Secure Act impact a claim to the Adoption Tax Credit for 2024 taxes?
- What should you do if the child’s Social Security Number is unavailable when you file taxes? Should you use an Adoption Taxpayer Identification Number (ATIN #)?
- How does the Adoption Tax Credit work in conjunction with employee adoption benefits? For special needs adoption?
- Do you need to send any documentation for the Adoption Tax Credit to the IRS when you file your taxes? What type of documentation should you keep in your records?
- How do you find a tax specialist knowledgeable about Adoption Tax Credit?
- And much more!
The Adoption Tax Credit Needs Your Voice.
Many years ago, the Adoption Tax Credit was a fully refundable credit. Advocacy efforts are still working to return it to that benefit. However, the effort needs your voice. To learn more about the Adoption Tax Credit, including its history, go to Adoption Tax Credit Advocates. This site also offers information on how you can join the advocacy with legislators to return it to a refundable credit.
The National Council for Adoption also keeps track of legislative initiatives, including the Adoption Tax Credit Refundability Act. Their Advocacy page offers many opportunities to make your voice heard on US adoption issues.
Thank you, Becky Wilmoth (the author of this guide) and Josh Kroll, the Adoption Tax Credit specialist at Families Rising. Each year, they join us for the annual podcast and online course. They are the two most knowledgeable people we know about the federal Adoption Tax Credit. Our community has found them to be extraordinarily helpful on the topic.
Image Credits: Nataliya Vaitkevich; Mikhail Nilov; PNW Production
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