Based on the number of questions we’ve received lately, there is a great deal of confusion on what will happen in the next few years to the Federal Adoption Tax Credit. This confusion is understandable if you look at the history of how this credit was last renewed. The Adoption Tax Credit was rescheduled to expire on December 31, 2010. In March 2010, as part of the Patient Protection and Affordable Care Act, the Adoption Tax Credit was extended one year until Dec. 31, 2011, the amount of credit was increased, and it was made refundable. On December 17, 2010, President Obama extended all the Bush tax cuts, which included the provisions for the Adoption Tax Credit, for two years to Dec. 31, 2012. This extension does not apply to the changes made by the Patient Protection and Affordable Care Act; therefore, the adoption tax credit for 2012 will revert to the pre-2010 credit amount (adjusted for inflation) and will not be refundable. After 2012, the Adoption Tax Credit will go away for non-special needs children, unless legislation is passed to extend it. For those of you filing for this credit in 2012 for your 2011 taxes, check out our Top Ten Tips for Avoiding Delays When Filing for the Adoption Tax Credit.
I want to thank Adoption Attorney Mark McDermott for breaking this down for us year by year.
How did the adoption tax credit affect parents in 2010?
- the maximum adoption tax credit is $13,170 for qualified adoption expenses (including special needs adoptions)
- the maximum exclusion from income for employer-provided adoption assistance is $13,170
- the allowable credit and the income exclusion begins to phase out for taxpayers with adjusted gross income of $182,520 and is completely eliminated for taxpayers with adjusted gross income of $222,520
- the credit is refundable, which means that a taxpayer’s qualified adoption expenses, up to the full $13,170, will be fully reimbursed by the government regardless of the taxpayer’s overall tax liability
- in an adoption of a special needs child, taxpayers may claim the full $13,170 credit without regard to the amount of qualified adoption expenses paid or incurred and regardless of their tax liability
- any portion of an adoption credit claimed in an earlier taxable year that a taxpayer carries forward to 2010 is allowable as a refundable tax credit in 2010
- the IRS will require taxpayers to provide documentation substantiating claims for the adoption credit. In addition, a taxpayer claiming the adoption credit for a child with special needs must attach a copy of the state determination of special needs to the taxpayer’s income tax return
What Happens to the Adoption Tax Credit in 2011?
- the maximum adoption tax credit is $13,360 for qualified adoption expenses (including special needs adoptions)
- the maximum exclusion from income for employer-provided adoption assistance is $13,360
- the allowable credit and the income exclusion begins to phase out for taxpayers with adjusted gross income of $185,210 and is completely eliminated for taxpayers with adjusted gross income of $225,210
- the credit is refundable, which means that a taxpayer’s qualified adoption expenses, up to the full $13,360, will be fully reimbursed by the government regardless of the taxpayer’s overall tax liability
- in an adoption of a special needs child, taxpayers may claim the full $13,360 credit without regard to the amount of qualified adoption expenses paid or incurred and regardless of their tax liability
- any portion of an adoption credit claimed in an earlier taxable year that a taxpayer carries forward to 2011 is allowable as a refundable tax credit in 2011
- the IRS will require taxpayers to provide documentation substantiating claims for the adoption credit. In addition, a taxpayer claiming the adoption credit for a child with special needs must attach a copy of the state determination of special needs to the taxpayer’s income tax return
- The IRS has updated their “tips” for adoptive parents planning on claiming the adoption tax credit on their 2011 federal taxes.
What Happens to the Adoption Tax Credit in 2012?
- after December 31, 2011, the refundability of the adoption tax credit and the increase in the maximum credit amount and income exclusion that were in effect for 2010 and 2011 will be repealed
- the maximum credit and exclusion from income will be reduced to $12,170 (but with an adjustment for inflation since 2010)
What Happens to the Adoption Tax Credit in 2013 and Beyond?
Unless further legislation is passed, there will be no adoption tax credit in 2013 and beyond. However, the $6,000 credit for special needs children will still exist since it is a permanent part of the law and thus not subject to the sunset provision.
Creating a Family will be following the progress of various legislations to extend the adoption tax credit past 2013 and to extend the refundability past 2011. To stay informed, sign up for our weekly email newsletter at the top left of this page.
Mark McDermott can be contacted at:
910 17th Street, NW #800, Washington, DC 20006
(202) 331-1440 or mcdermott@mtm-law.com or www.theadoptionadvisor.com
Image credit: agrilifetoday
I’m still totally confused. Our adoption was supposed to be finalized by the end of 2011, but unfortunately things were held up at the review process b/c they’re so backlogged. The adoption of our little girl became finalized in april 2012. I don’t understand all the refundable & unrefundable tax issue & the more people try to explain it, the more confused i get. So, my question is, which i cannot get a simple YES or NO answer: When my husband & I file our taxes in February 2013 for THIS YEAR (2012), are we going to receive a check?
Kesha, the question doesn’t lend itself to a yes or no answer. Go back and listen to these two podcasts for the answer to your question.
• The Feb 29, 2012 Creating a Family show: The Refundable Adoption Tax Credit for 2011 and 2012 Taxes
• The Dec 14, 2011 Creating a Family show: Adoption Tax Credit for 2011 and 2012
Also, post your question on the Creating a Family Facebook Support Group if you are interested in a discussion on this topic. https://www.facebook.com/groups/40688106167/).
My husband and I would like to pay for a large percentage of my sister and brother-in-law’s adoption. Can we claim the tax credit for any of that?
Hello all I have been doing my taxes online myself.Last year didnt know anything about the adoption tax credit.I adopted my babies in 08 and could have claimed the credit last year. but i say better late than never.any way Im just beginning this Journey with the irs, ive read a lots of stories about the Adoption Tax Credit. Hopefully I will be one of the lucky ones.H&R did mine amended return didnt know that i had to amend 08 and 09 in order to do the carryforward in 10.
We are actively working on trying to get this tax credit extended for adopting families. We have started this petition to gain support and many letters have been sent to politicians. We have had responses from some Congressional Representative that are reviewing the best plan of act to accomplish this task, but in the mean time we need to continue obtaining signatures.
Change.org|Start an Online Petition »
Thanks Rob. Creating a Family will be working to help promote the new legislation. We’ll keep you informed on what is happening. For you and others, if you have already done so, sign up for our weekly newsletter at the top left of this page or any page on the http://www.CreatingaFamily.org website. In the meantime, sign the petition.
Hi Dawn. I have a question I’m wondering if you can answer…We just completed an international special needs adoption (Down syndrome) and received a considerable amount of grant money for the adoption. Are we only allowed to receive a tax credit for acutal money out of pocket paid or will we be allowed the full amount?? Thanks for any help you can give.
Thanks for the information. That is very helpful.
My husband and I just began the adoption process for our hard to place foster daughter. She does fall under the guidelines of being a “special needs” child. I don’t understand the new tax revision. Can someone help? ??I was also told that we could claim the adoption tax credit this year even though the adoption isn’t finalized…can anyone clarify this for us?
The special needs label is determined by whether your child receives monthly subsidies from the state. For questions specific to credits for special needs kiddos send an email to taxcredit@nacac.org. You might also post this question on the Creating a Family Facebook Support Group (https://www.facebook.com/groups/40688106167/) and see what answers you get there.
I just found out about the Adoption Tax Credit today and I adopted two children from 2003 to 2005 and if I am understanding this correctly we are not entitle to receive the Adoption Tax Credit because it is not refundable for that time period. Is this correct?
My question is this?
My husband and I adopted our four grandchildren. Back in 2006!
And we have been getting tax credits for all four of them.
All of the children are special needs children. But my husband and our CPA.
Thought special needs was for only the two there who were on medication at that time.
They are all on medication now. But regardless!
Our CPA said since we didn’t claim the other two as special need children.
In the beginning. We cannot go back and claim them now.
Because of a five year limitation status. Is this correct?
I know someone that did not file their taxes at all!
And went to the IRS and they went all the way back to 2005.
And was able to claim all of the tax credit.
Please help me understand.
I do not want to continue claiming two special needs children for ever.
When clearly I have four with documentation.
Sincerely Katie
This is something I have to find more information about, thanks for the posting.
Seeing conflicting information all over the place, but let’s just assume that for international adoptions finalized in 2012 it becomes only a tax credit (not refundable).
What would stop me from claiming about 15 dependents on my biweekly paychecks, such that I technically owe the government a great deal of money at the end of the year? Wouldn’t the tax credit then kick in and deduct against this? There wouldn’t be a big check at the end of the year, but I would’ve received way more money in my paychecks through the year to presumably make up for it.
Just curious if this is legitimate?
Thank you Dawn. I think my understanding of this legal change was lacking. I spoke to my accountant, and it appears that whether the credit is refundable or not won’t matter in my case. Even a non-refundable credit would get paid in full as long as your tax BURDEN is over ~$12,000. It has nothing to do with whether you have a bill due at the end of the year or not. If you’ve paid the government 12 grand in taxes in the year, you’re getting it back.
The only time the refundable part makes a difference is if your total tax burden for the year is less than the $12k. For the life of me I don’t understand how someone could pay for a $30k adoption who doesn’t have a $12k tax burden, but I guess it happens? 🙂
Anyway, this was very welcome news to me, so I’m assuming there might be other parents in the same boat who were misunderstanding.
Would still appreciate your tax expert confirming all this, but in the meantime I’m no longer in a state of panic…
Thanks!
– Steve
Tried to file through H&R Block today, but was unable to complete the return because the carryover ($9,000) from 2010 did not populate onto this years form. I have hade 4 seperate adoptions for a total of six (6) kids since 2007, but have not been able to get the Adoption Credit until 2009. Also, I completed the 4th and final adoption June 30, 2010, and the Government owes me the $13,170 for that one. So I will have carryover again this year. Does that mean that I will not get the carryover onto 2012’s Return? That is not right! If I am eligable now then they still owe it to me. That is like saying that if you enter the store before closing time than your not going to get served, and told you are SOL and to leave. That is tantamount to government robbing the populace of what, according to the Tax Code, is rightfully thiers. Their should be a GRANDFATHER Clause added until the Government pays out until completion. If the taxpayer owes you bet your sweet bippie they would want ALL of what you owed! Your imput is appreciated.
Thanks for all your wisdom. Looking forward to your updates.
Help make the adoption tax credit refundable for 2012 and 2013 by signing the petition on Change.org Economic Justice Petition: Make adoption costs fully refundable for 2012 and 2013 Tax Years. http://chn.ge/ns07q9 Your help is needed.
Is there any movement happening to extend the refundability of the tax credit into 2012?
Funny you should ask. We too have been trying to find the answer to that question. I intend to ask it on the Dec. Adoption Tax Credit show. If you have already done so, sign up for our weekly newsletter when we will notify you of the date of that show.
Is there any news on what is currently happening in legislature to extend the refundability of the credit beyond 2011?
Bridget, nothing much is happening right now. We will keep you informed as soon as we hear. Please sign up for our weekly newsletter at the top left of this page, if you haven’t already done that.
Is embryo adoption considered applicable to the tax credit?
It is my understanding that embryo donation is not eligible for the adoption tax credit.
Hello. My wife and I finalized our domestic adoption in 2011, but our income level in 2011 is above the max permitted which allows us to take the adoption credit. Is it possible to claim this credit on our 2011 return anyway (filed April 2012), receive a zero credit for 2011 due to the income level but then carry the credit forward to future years to claim if our income level decreases below the max allowed? Thank you!
Now I am really confused. If I adopt in 2012 and finalize in 2012, can I get a $12,170 tax credit when I file in 2013 or not?
I am wondering if it works like it did in 2005 when I adopted my first child…In 2005 I adopted and got a refund of $10,100, because I had paid that in taxes during the year, and the tax credit reduced my taxes so I got a refund in early 2006 after filing my 2005 taxes. Is this what is in place in 2012…or is it nothing in 2012?
I am in the process of adopting right now — I am paying all the fees etc. If the adoption does not become final until 2012 – am I allowed to file for refund on any of the money that I am paying now. It may be final by the end of the year or it may be January. I hate to miss out on the refund for the matter of only a couple of weeks especially since I am paying the fees now this year.
Can I deduct 2009 expenses on my 2010 tax-return if the adoption was finalized until Sept 2011? We have not taken any deductions. Also, does anyone know if marketing/outreach expenses are qualified expenses? Thanks.
i would like to be added to weekly email list
Great. We’d love to have you on the list. You can sign up on the top left of any page on our website.
continuation… the autistic little girl has been in my home for 2.5 years now as a foster child. i will be adopting her in late 2011 or early 2012. my income is $74,000. what will the tax credit be for each timeline?
Hi! i will be adopting an autistic little girl. The adoption will either be finalized in Dec 2011 or Jan 2012. How will each
possible timeline affect the credit I can claim?
So what happens if you don’t owe taxes in 2012, and you adopt a child in february of 2012? That tax credit is not just lost? We don’t see any of it? our adoption of two girls finalizes in feb. of 2012.
We will be doing another Creating a Family show in Dec. 2011 on the Adoption Tax Credit. Sign up for our weekly email newsletter and we’ll let you know when that will be. We will take questions from the audience for our guest adoption tax credit experts.
joy on september 30,2011 i have not heard one thing since i mailed my adoption tax credit back in april they have receieved but i have heard nothing at all looks like its taken a long time.
hi dawn my wife and i adopted a child it was finalized in 2011 i will file for the credit on my 2011 federal taxes since u dont file until 2012 for 2011 taxes is my amount refundable since im filing 2011 taxes?
Our adoption tax credit expert says: Yes. 2011: $13,360 (will be indexed for inflation), refundable
As long as income is below these ranges. Adoption Tax Credit Income Phase-out Ranges
2011: $185,210 – $225,210
Sarah, I have submitted this question to our tax expert and will post her response on our Adoption Tax Credit FAQ page. I think the answer will be that for int’l adoption with special needs you can only claim the money actually spent. Are you on our weekly email list? Send me your email and I’ll put you on it. We will announce when we added questions and answers on our FAQ page. dawn at creatingafamily dot org
In 2012, since it will not be refundable, will you still be able to carry over any tax credit amount that was not able to be deducted for that tax year? I know before there was a 5 year carry over. I was just wondering because we are considering an international sibling adoption that would not be finalized until 2012.
BTW, we are still waiting for our refund for our adoption in 2009 :-/.
Anne, I am not a tax expert, but the 5 year carry over is seperate from the refundability aspect of the adoption tax credit and existed prior to the Health Care Reform Act that made this credit refundable. I would assume that it would still exist in 2012 for carry-overs coming into 2012. If the adoption tax credit is not extended past 2012, I don’t know what happens to any carry-overs into years 2013 and beyond. I would assume that you would not be able to carry them over, but I don’t really know.
People that I know in person are starting to receive their tax credit. We have received our carryover and not our 2010 adoption–go figure. The data entry people at the IRS forgot to enter line 12 when they first received our taxes so we have to go through a reconsideration of examination. It’s kind of a mess….and will take more time. So, we wait some more! :0)
Oh Jodi, so close, yet so far away. Hang in there. Yes, we hear from more and more people who are getting their credit. It just takes time, but it is happening.
We will have big adoption expenses in 2011 tax year that we cannot claim until our 2012 taxes. I wonder if we can carry that over as refundable credit? Doesn’t sound like it… 🙁