Adoption Tax Credit Extended and Improved

Dawn Davenport


Adoption Tax Credit Extended and ImprovedYay, we did it! The federal Adoption Tax Credit has been improved and extended until Dec. 2011.  This law was included in the Health Care Reform bill which became law on March 22, 2010.  I’m pretty creative in coming up with ways that adoption is good for all concerned, but even I think the connection of the adoption tax credit and health care is tenuous.  I guess the old adage that making laws is a lot like making sausage is true. It’s best to just enjoy the finished product without looking too closely at how it’s made.

The maximum credit will increase from $12,150 to $13,170 per eligible child. As with the old adoption tax credit, this credit applies to both domestic and international adoptions and to both special needs and non special needs adoptions.  This increase is retroactive to January 1, 2010.  The biggest improvement of all is that the Adoption Tax Credit is now refundable.  I am not a tax lawyer or an accountant, but from what I have been able to glean from the limited information “out there”, making it refundable means that if your credit is greater than the taxes you owe, the difference will be refunded to you as part of your tax refund.  In the past, if your adoption credit was greater than the amount you owed in taxes you had to carry it over for up to five years in order to take full advantage of the credit.  Some families were never able to take full advantage. Now, the IRS will include the difference in your refund check.  To paraphrase Vice President Biden, this is a big “darn” deal.  (Sorry Mr. Vice President, this is a family friendly blog so I had to take liberties with the quote.)

An income limit exists for receiving this tax credit. In 2009, the credit starts phasing out if your modified adjusted gross income is $182,180, and is completely phased out at $222,180.  The new law states that the income limit will be adjusted for inflation, so it is likely that this limit will increase slightly.

This blog reflects my understanding, but I’m not an expert. As always, when it comes to taxes, check with a tax professional for the specifics and how they will apply to you.

To see a full copy of this law, go to the Health Care Reform Bill, and scroll down to the very bottom (page 903-906).  For more information on Affording Adoption and the Adoption Tax Credit go to our page with that title.  Note that none of the IRS forms or fact sheets on that page have been updated to reflect the new Adoption Tax Credit. We still have a ways to go with the Adoption Tax Credit.  We will be facing this same battle when the deadline for termination of the credit comes up again in Dec. 2011.  We need to make this credit permanent.

Image credit:  Gilmoth

25/03/2010 | by Dawn Davenport | Categories: Adoption, Adoption Blog, Blog | 41 Comments

41 Responses to Adoption Tax Credit Extended and Improved

  1. Avatar Joy Graham says:

    We adopted our daughter from China in April of 2010. Filed our taxes. We have provided ALL documents asked for and have recieved 3 letters from the IRS.

    All 3 letters state that they want her form that was filled out for her social security card. We have provided that plus her social security card 3 times now.

    We have not recieved a refund and are told that they will review our paperwork in 30 more days. Each letter is the exact same one…We will review your information in 45 days, 30 days, so on.

    We keep resending the SAME paperwork. It has been going on since March. I am in a chat room where hundreds of people are getting the same run around. They are getting the same letters that we are and no refunds…

    We need the money to adopt our daughter’s sister this Spring! It is so upsetting to recieve letters repeating the same thing and adding to insult the IRS letter say, “Do not contact us on this matter.” -Joy Graham

  2. Avatar Dawn says:

    Stephanie, that’s a good question. I have wondered it as well. What happens to the remaining credit that is being carried over from a previous year. The actual wording of the statute doesn’t address it.

  3. Avatar Krissi says:

    Wow! That is great news! I just added your link on to my blog list for IF resources. Happy ICLW!

  4. Avatar Matt says:

    We’re still finishing home study and we’re hopeful but not sure if placement will happen this year. Does anyone know if this the credit will extended past 2011? Can the sunset be lifted or extended?

    • Avatar Dawn says:

      Matt: No one knows yet, but there will be a strong push by the adoption community to get the credit extended and we hope to keep it as a refundable credit. Sign up for our weekly newsletter, where we’ll let you know what’s happening and also what you can do to help it get extended. You can sign up on the top left hand side of this page.

  5. Avatar Sheri says:

    You will be refunded any credit you have carried forward up to this point. If you adopted a special needs child and had no out-of-pocket expenses, you can go back and amend your returns back to the year you adopted (no earlier than 2005), then carry forward the adoption credit (you get the amount of the credit for the year you adopted) until you file your 2010 return. You will get the credit refunded to you in full if you have no tax liability. This applies to adoptions for years 2005 – present.

  6. Avatar Karen says:


    Do you know if this credit is available if you have taken placement in 2011, but may not finalize in 2011? We were told that this was in the HCR Bill, but we can’t find anything that specifically addresses placement vs. finalization (or we may not understand what we’re looking at). Thanks for being willing to answer all of these questions!

  7. Avatar Kristi Howard says:

    I am running my numbers in H&R Block’s software. Although the form is not available yet, I wanted to see how this would affect us considering we’ve used very little of our adoption tax credit, and have a 20,500 carryforward.

    Well, with H&R Block, it asks you to put in your carryforward amounts from 2005-2009. When I do this, it coughs up a return amount of $61,000, as if it is refunding you for every year you claimed a carry-forward.

    Surely this information is incorrect, right?

    Also, once our credit is “refunded” this year, can we claim the credit again next year, in what will be our 5th year, or once this is cashed out, is it “over and done” for anyone who had a carryforward?

  8. Avatar Laura says:

    with a special needs adoption does it matter if the adoption was finalized in 1997,have never filed for a adoption tax credit and is still receiving an adoption subsidy in 2010? Can I amend any tax year at all?

  9. Avatar laura says:

    My question is: If we technically adopted her in China in Dec 2009 but did not come home with her till jan 1 2010 and did not readopt her through our state till probably april, than are we allowed to take the extra 1000 that was added to the credit? I guess what I am asking is, which date does the irs consider it to be finalized, the dec 2009 date or the april 2010 date?

  10. Avatar Kathy says:

    Taxpayers who adopt a special needs child can claim the full amount of the adoption credit without regard to the actual expenses paid in the year the adoption becomes final.

    Am I to understand that if you adopt a special needs child you adomatically get the full amount as a refund???

  11. Avatar Poopsie says:

    SECTION 3. INTERIM GUIDANCE 1. Amounts Carried Over from Earlier Taxable Years to a Taxable Year Beginning in 2010
    An amount of an adoption credit claimed in an earlier taxable year that a taxpayer carries forward to a taxable year beginning in 2010 is allowable as a
    refundable tax credit. An amount that a taxpayer carries forward to a taxable year beginning in 2010 is not subject to an income limitation in that taxable year.
    The following examples illustrate these rules.

    Example 1. (i) In 2008, Taxpayer pays $2,000 of QAE to adopt an eligible child who is a citizen of the United States. In 2009, Taxpayer pays an additional $8,000 of QAE and the adoption becomes final. The adoption credit for $10,000 of QAE is allowable in 2009.
    (ii) Taxpayer’s tax liability for taxable year 2009 is $6,000, and Taxpayer applies $6,000 of the $10,000 credit against Taxpayer’s 2009 tax liability. Taxpayer carries forward $4,000 of the credit to 2010.
    (iii) In 2010, Taxpayer’s tax liability is $3,000. Taxpayer applies $3,000 of the $4,000 carried forward adoption credit against Taxpayer’s 2010 tax liability. Taxpayer is entitled to a refund of the remaining credit.

    Example 2. (i) The facts are the same as in Example 1, except that in 2010, Taxpayer pays an additional $2,000 of QAE. Taxpayer’s income exceeds the upper income limitation for 2010.
    (ii) Because of the income limitation, the adoption credit is not allowable for the $2,000 of QAE Taxpayer pays in 2010. However, Taxpayer may apply the $4,000 adoption credit carried forward to reduce Taxpayer’s tax liability for 2010 and may receive a refund of any carried forward credit that exceeds Taxpayer’s tax liability.

  12. Avatar Dawn2 says:

    We finalized in 2007, and we will get teh remiander fo our tax credit refunded this year.

    Here’s an update:

    Carryover Credits are Refundable

    “An amount of an adoption credit claimed in an earlier taxable year that a taxpayer carries forward to a taxable year beginning in 2010 is allowable as a refundable tax credit,” according to interim guidance released by the Internal Revenue Service (Notice 2010-66). Before this particular tax credit was revised as part of the health care reform legislation, any adoption credits in excess of a person’s federal tax liability could be carried over to the following year, where in offset that year’s tax. And if there were still excess credits, the adoption credit would continue to carry over for up to five years. But now that the adoption credit is refundable, any carried over credits from previous years can be cashed out, so to speak, on the 2010 tax return.

  13. thank goodness! we were quite counting on it!

  14. Avatar Tara James says:

    This will be fantastic if I actually get a placement this year. Wonderful news!

  15. We are adopting 2 boys. This is good!

  16. Does this mean that if I adopt a child in 2010 I get a $13K credit instead of $12K? That is fantastic!!

  17. Avatar Melissa Ross says:

    Thank you for this info; this is what I’ve been looking for. We’re in the process of adopting two girls from Haiti; costs are going to be significanty higher than we thought at first, and I was starting to panic. This news truly wonderful news!

  18. Avatar Sue says:

    Can you please clear something up for me? We have very little to no tax liability (we receive a refund of about 5k each year). With the adoption credit becoming refundable, if we were to finalize our adoption this year or in 2011, would we be eligible to receive the $13,170 in a refund check? (our income is less than the statute). Thank you for the info.

    • Avatar Dawn says:

      I have to be really clear that I’m not giving tax advice since I’m not a CPA or an attorney specializing in taxes. However, with that caveat–it is my understanding that if you have qualified adoption expenses exceeding $13,170, you would be eligible for a refund. Check with a tax professional for how this applies to your specific situation.

  19. Avatar Dolly says:


  20. Avatar Stephanie says:

    So, if we have a carryover from an adoption before 2010, do you think we will get the full credit and refund next year? I sure hope so!

  21. Avatar Robert says:

    So, i hope the 1/01/2010 retro date means that if you filed after that date…shoot! i think i am out of luck. Finalized our adoption in december of 2009. i guess i dont get the refund or the larger credit. We only got about 4k back on our taxes…had to carry over the rest.

  22. Avatar Rebecca says:

    Now if Canada (where I live) would just follow suit. We get very little tax break for adopting.

  23. Avatar Kristin says:

    I’m so glad this tax credit got extended. I also loved your last post with the Top 10 Infertility Myths.

    ~ICLW #31

  24. Avatar Ryane says:

    Hi Dawn,

    Thanks for breaking this down for everyone. I have seen the “retroactive” date as 1/1/09 (on here and on the Joint Council’s statement) but have also seen 1/01/10 several places as well. Have you confirmed that it is in fact 1/1/09?


    • Avatar Dawn says:

      Mea Culpa! I erred when I read the statute and perpetuated a typo. The exact wording in the statute is found in SEC. 10909(d) “EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2009.” I must have seen the year and then thought to change to January without changing the year. I have corrected the blog, but just to make completely clear. The new Adoption Tax Credit is retroactive to Jan. 1, 2010. I have still not been able to find what they new income limits will be, but I have added to the blog that the 2009 figures that I included will be adjusted for inflation. I have also included a link to the actual statute in the blog, but for those of you just reading the comments, the new Adoption Tax Credit can be found at It is the very last section in the The Patient Protection and Affordable Care Act, so you’ll have to scroll all the way to the bottom to page 903. Sorry for the misinformation.

  25. Avatar chrissy says:

    I had been wondering about this also!

  26. Avatar Gemma says:

    Thanks goodness! I didn’t even realize this had been brought to the table to potentially go away! Since we finalized this year (even though we paid for everything last year) we just found out we can’t file now until 2011 so this is really good news!

  27. Avatar angela says:

    At the risk of sounding very uneducated I’m going to ask a few questions. We completed an international adoption in 2008. Our income is no where near to high but our accountant told us it really didn’t benefit us at all because with 5 kids we were already not paying any (we pay our taxes quarterly) Federal taxes. Now that it is refundable will we be able to get a refund or is it to late for that or am I misunderstanding how it works?

    • Avatar Dawn says:

      Angela, I’m not an expert in this area of law, so you will need to check with a tax professional. It is my understanding that the refundability (is that even a word?) provision would have helped you, but your adoption would not be eligible since the law is only retroactive until Jan. 1, 2010. You would need to look at exactly what costs are covered and when they were incurred.

  28. Avatar Bethany says:

    Hi there,

    Just curious… where do you find that the increased amount is retroactive to Jan 1, 2009? I can’t find that in the text of the bill at all. Everything I read states it’s retroactive to Jan 1, 2010. I’m hoping what you say is accurate because we finalized last year in 09! 🙂

    If you can provide the link to that info I would appreciate it so I can take it to my tax person!

  29. Avatar Brett says:

    The Adoption Tax Credit was included in response to the Pro-life, pro-adoption Democrats concerns that federal funding would be used to pay for abortions. The tax credit is part of a larger support package for pregnant mothers that includes counseling.

  30. Avatar Kyle says:

    Good post! I just wanted to possibly clarify one thing (and I’m not an expert either). It looks like it is retroactive to January 1st, 2010. So those who are filing their taxes right now would not be affected. From the bill:

    (d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2009.

    Since those who are filing their taxes right now are doing for tax year 2009, it looks like it doesn’t affect them. It will start affecting people who are finalizing adoptions this year.

  31. Thank you so much for sharing this. I’ve got The Boss on the case now, investigating whether or not we are eligible for the additional funds. It’s so complicated but worth the look-see.

    Additionally, I’m linking my Friday blog post to this post, giving you kudos for keeping us informed. You are awesome 🙂

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