The IRS recently announced that the maximum adoption tax credit for 2016 will be $13,460.00. The adoption tax credit, established in 1997, has helped multiple thousands of families afford to adopt.
Remember that a tax credit is different from a tax deduction–it’s better. A credit is an amount that is subtracted from the adopting parents’ tax liability. The adoption tax credit was a refundable credit only in 2010 and 2011, and will not be refundable in 2016.
The precise amount of the tax credit depends on the expenses incurred and the amount of taxes owed by the adopting parents. Here are two examples:
- If the adopting parents spent $10,000.00 in recoverable adoption costs but owe only $7,000.00 in federal taxes, they can take a tax credit for only $7,000.00 in the first year following the adoption. But they may carry forward the unused credit for five tax years or until it is used, whichever comes first.
- If the adopting parents owe $30,000.00 in federal taxes in one year and pay $10,000.00 in recoverable adoption costs that same year, they can claim the full $10,000.00 tax credit, thus reducing their tax liability to $20,000.00.
What Costs Can Be Included in Adoption Tax Credit 2016
Adopting parents can take a tax credit for “qualified expenses” they spend to adopt a child. “Qualified adoption expenses” are reasonable and necessary adoption fees, court costs and attorney fees, traveling expenses (including meals and lodging), and other expenses directly related to the adoption. The maximum tax credit that parents can take is adjusted each year and for 2016 is $13,460.00.
Income Cap for Adoption Tax Credit 2016
An important limitation on the Federal Adoption Tax Credit is the income cap. Under the 2016 formula, adopting parents who earn no more than $201,920.00 are entitled to take the full credit. For adopting parents who earn between $201,920.00 and $241,920.00 in income, there is a reduced tax credit, and no tax credit is available for those earning more than $241,920.00.
Adoption Tax Credit for Adopting a Child with Special Needs
Parents who adopted a child who has been determined to have special needs by the state or county child welfare agency can claim the maximum credit regardless whether they have qualified adoption expenses at all or have spent any money to adopt the child.
Special needs for the purposes of the adoption tax credit is almost exclusively for foster children, and the vast majority of kids adopted from foster care are considered to have special needs. Basically if the child receives adoption assistance or an adoption subsidy from their state or county, then they are considered special needs for purposes of the tax credit. This assistance or subsidy does not have to be in the form of a monthly payment—it is sufficient that you receive either reimbursement of non-recurring adoption expenses or Medicaid through the adoption assistance program.
We hear from parents who adopted children internationally or domestically who clearly have “special needs” or are disabled or in therapy who want to know if their child will qualify as special needs under the adoption tax credit. The answer is likely no.
No child adopted internationally is considered special needs for the adoption tax credit. Children adopted domestically, but not through the state foster care system and not receiving adoption assistance from the state foster care system are not considered special needs for the adoption tax credit. Not even every child adopted from foster care is considered special needs (about 10 percent of children adopted from care do not receive adoption assistance support).
Is the Adoption Tax Credit Available for Step Parent Adoption?
The short answer is no. The adoption credit is for international adoptions, domestic private adoptions, and public foster care adoptions, but is not available for stepparent adoptions.
Is the Adoption Tax Credit Available for Second Parent Adoptions
Expenses incurred by a registered domestic partner who lives in a state that allows a same-sex second parent or co-parent to adopt his or her partner’s child, are considered adoption expenses and are eligible for the adoption tax credit if the costs meet the definition of “qualified expenses”.
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Much of the information about the Federal Adoption Tax Credit for this blog came from the Law office of James Fletcher Thompson. Additional Information can be found at:
Have you benefitted from the Adoption Tax Credit?
P.S. We will be having our annual Adoption Tax Credit Creating a Family Radio Show in January 2016. To get notice of the exact date sign up for our weekly newsletter. Send us your questions to ask our experts on the air to info@creatingafamily.org.
Image credit: Alan Cleaver
I’m confused on the federal adoption tax credit. I adopted this past month and my daughter qualified for the max subsidy. However I didn’t pay any attorney fees and she is not disabled do I qualify?
We will ask this question on the annual Creating a Family Adoption Tax Credit show, which usually is scheduled in Jan. To get more info on this show and to submit more questions for our panel of experts, sign up for our weekly adoption e-newsletter at https://creatingafamily.mystagingwebsite.com/subscribe.
I was given Legal Guardianship from DHR in another state but had to get parental rights terminated in my state and then I was able to adopt. Is this considered a foster to adopt or private adoption? How does that work for tax purposes?
We will ask this question on the annual Creating a Family Adoption Tax Credit show, which usually is scheduled in Jan. To get more info on this show and to submit more questions for our panel of experts, sign up for our weekly adoption e-newsletter at https://creatingafamily.mystagingwebsite.com/subscribe.
I think it I’d SO wrong that we started this process of adoption in 2008 (officially waiting jan 2009) & waited FIVE YRS, although we were told 18-24 months, to bring her home and now we cannot get the refund. It is not right !!
It should be refundable to help those helping the precious children
Yes, I adopt three children from TX and file for the adopt credit in 2013, that when i found out the it have to be carryforward, it’s been four years and i didn’t owes any tax. I think the should give us the money so we can help the children.
How do I find out if the state considered my adopted child “special needs”? He did qualify for the monthly max amount given my the government and is able to stay on medicaid. I know I can say yes to #1 and #2 as far as special needs go on the IRS page but I’m not sure about #3 and would like to find this information out.
I’ll ask your question on our annual Adoption Tax Credit Creating a Family show. It will likely be in Jan. 2017. To get more information on the timing and to submit your other questions, sign up for our weekly adoption newsletter at https://creatingafamily.mystagingwebsite.com/subscribe.
We have 3 grandchildren in our care. One was given to us through DCF–we have Permanent Guardianship of him. The other two we have Temporary Custody By Extended Family. The one we have Permanent Guardianship over is disabled. He has MSUD. We started his adoption and will spend approx $5000.00.
The other two, we started their adoption and because bio mom won’t consent, their adoption will take more money. So far we have spent approx $20,000.00. One of these children has PTSD, the other is Autistic, has SPD, LPD and APD (Sensory, Language and Auditory Processing Disorders). The Autistic and MSUD children are in therapy 3 times a week.
Would we qualify for the tax credit?
I’ll add these questions to the list for our annual Adoption Tax Credit show, which will likely be in Jan or Feb 2017. To get more info on when this show is scheduled sign up for our weekly adoption newsletter at https://creatingafamily.mystagingwebsite.com/subscribe.
Questions please.
Facts: I meet all income and tax liability requirements for the tax credit.
I start my adoption process and pay $5,000 in 2016.
I finalize and pay $10,000 in 2017.
1) I can apply for the tax credit of $5,000 in the spring of 2017 when I complete my 2016 taxes?
2) Do I have to apply for the $5,000 in the spring of 2017 when I complete my 2016 taxes?
3) Can I wait until the spring of 2018 when I complete my 2017 taxes to file for the entire $13,400?
Thank you in advance.
We have a lot of resources on the Adoption Tax Credit at Adoption A-Z Resource Guide (https://creatingafamily.mystagingwebsite.com/adoption/resources/ ). I’ll also add these questions to the 2017 Adoption Tax Credit Creating a Family radio show.
so I am confused, If I usually get a refund because I am home owner and pay A LOT in taxes does that mean the tax credit will not help me at all? I had one failed placement and am currently matched. All in all I will have spent about 40k. Since I get a refund I get none of this back from federal government? I really hope I am reading this wrong, I was counting on this boost to pay back the loan I had to take out.
Theresa, assuming you have qualified adoption expenses and you have tax liability and you don’t have an income over the maximum allowed, you can utilize the credit. I strongly recommend that you listen to this Creating a Family show to learn more.
I owe taxes from the years of 2008, 2009 and 2010 to the amount of approx. 20,000. I have had custody of my nephews for 8 years and I would like to adopt them. If I adopt them would this wipe out this year (2016) and file my last few years income tax returns would I get my income tax back that I received the last several years? That could really help my family out! Thanks for the information. 🙂
We can’t answer individual tax questions here, but can add this to the list for next years Adoption Tax Credit show.
We’ve adopted 3 children all from foster care. We did receive a check for 20 some thousand a few years back. At that time the credit was for only 10 thousand some each child. We still have the tax carry over for the last child adopted in 2012. I believe we were told it can carry over for 7 years. Just keeping my fingers crossed the IRS will let this to be refundable credit again soon.
If I took a vacation for bonding to see if child would be a good fit for our family to decide if I wanted to complete adoption. Would vacation be deductible?
I will ask on next year’s Creating a Family Adoption Tax Credit show.
So I adopted 3 from the foster system n 2 are special needs. By the time my taxes are done I used 0 from this credit. So when they say you get 13400 per child to adopt its deceiving because you dont get that money. You get credit if you need it. But if your not making over 100000 a year then this credit benefits none. The foster system gets your hopes up that it will benefit n help you to adopt n not foster n yet thats not the case. Dont get me wrong they are my kids with money or not but for a single mom making 25000 a year that money would of been nice to start savings for kids.
I am sorry this question came too late for our Annual Adoption Tax Credit show. We did talk about some of this on this years show and I will ask it on next year’s show. You might also contact Josh Kroll at NACAC, one of the guest on our show, and see if he has any insight.
So if you adopt a special needs child you may qualify for the max amount but they only keep it as a credit in case you need it?
I’ll ask your question on our annual Adoption Tax Credit Creating a Family show. It will likely be in Jan. 2017. To get more information on the timing and to submit your other questions, sign up for our weekly adoption newsletter at https://creatingafamily.mystagingwebsite.com/subscribe.
I adopted 3 of my nephews, but iam on disability, so this is no help to me, I don’t think this is fair .
I believe every one who adopts a foster child should get help through the tax credit, people on SSDI should get it as well. They can’t help it if they are on disability. We could and would make sure it helped our boys. I believe it being a one time only for each adoption. I would advocate for people like this as well. I love my 2boys and it would be great to get this one time help.
Is the tax credit per child? What if you adopt a sibling group?
This is a per child credit. If you adopt a sibling group you may receive the credit for each child.
True.
When is the adoption tax credit radio show?
Here is the link to the Adoption Tax Credit 2016 show.
My wife earns a base of 150,000.00 but receives a bonus based on performance which is paid in the following year. How do they determine what her income is for the tax credit? If they would not count the bonus we would be under the 201,920.00 but with it we are over.
Thank you
Marc, great question. I wish we had it before our annual show. I will ask it on next years show (Adoption Tax Credit 2017), but I realize that doesn’t help you this year. You could try scheduling a consult with the CPA guest on our show-Becky Wilmouth with Bill’s Tax Service. She might well be able to answer this question.
The basis are your AGI Adjusted gross income. This will be your total gross income minus specific deductions
Its not refundable only helps the wealthy
No, it is not refundable, but that doesn’t make it only useful for the wealthy. As long as you have tax liability you can use the credit.
I’m a bit confused. I adopted through foster care where the state paid for the adoption, however, the attorney told me I was eligible because my child qualifies as special needs. How exactly does that work? TIA.
We addressed that question in the Adoption Tax Credit 2016 Creating a Family show.
If you spent a lot of money between an agency and an attorney’s office to try to adopt but do not succeed in adopting through them. Then you try foster to adopt and you may actually adopt, can you claim a failed adoption credit for the first 2 attempts?
Michele, I’ve added your question to our list to ask to our experts on our annual Adoption Tax Credit Creating a Family Radio show. It’s coming up in Jan. 2016. Make sure to sign up for our newsletter to get more info.
1) Is this credit for the tax year 2015 or 2016?
2) Do you have to have the child live with you for at least 6 months before you can claim the credit?
3) Just FYI, I heard that if you’ve adopted before and you’re claiming a second adoption credit or deduction, you’ll most likely get audited so keep those records on hand.
Judy, I’ve added your questions to the list we’ll ask our experts on the upcoming Adoption Tax Credit Creating a Family Radio show. Sign up for our newsletter to get the exact date. It should be in Jan. 2016.
In an international adoption, if the adoption is finalized in country but that child is not permitted to exit the country, as is the situation currently in regards to hundreds of Congolese adoptions, can parent claim the adoption tax credit?
I’ve added your questions to the list we’ll ask our experts on the upcoming Adoption Tax Credit Creating a Family Radio show. Sign up for our newsletter to get the exact date. It should be in Jan. 2016.
We are in a lengthy international adoption process, and the expenses will span several years before the adoption is finalized. 1) Does the adoption have to be finalized before we can claim the tax credit? 2) Will we still be able to claim the credit for the total amount we have spent on the adoption, or only the amount that we spent during the year for which we are filing?
Pamela, I’ve added your question to the list of questions for our annual Adoption Tax Credit Creating a Family radio show. Sign up for our newsletter to get the exact date of the show. (We are in the process of finalizing the date.)
Pamela,
The Adoption Tax Credit can only be claimed for international adoptions that have been finalized. However, all eligible adoption expenses can be claimed even if they span multiple years.
For us (two adoptions from Guatemala), we claimed our travel expenses (including hotel and airfare) and international fees and that more than made up the eligible adoption expenses amount.
Would I qualify for the text credit for adoption which I adopted in 2010 but got separated now divorced what I too late to see if I qualify for the adoption Tax foster care for a special needs
I will ask your question to our panel of experts on the upcoming annual Adoption Tax Credit Creating a Family radio show. Sign up for our newsletter to get the exact date of the show. (I don’t know it yet.)
You have three years from the due date to amend , so i think you lost out on it…