Federal Adoption Tax Credit Info

Important Information About the Adoption Tax Credit

Attorney Mary Catherine Barrett is not a financial tax advisor. This information is not a substitute for professional tax advice and should not be relied upon without professional tax advice.

1.  What is the increase in IRS Tax Credit Amounts for 2014?

Adoptive parents are able to claim $13,190 per child for qualified adoption expenses. There is an income eligibility phase-out with incomes of $197,880 to $237,880. If individuals earn more than $237,880, they are ineligible for the adoption tax credit.

2.  How does this differ from the previous year?

Previously, the adoption tax credit for 2013 was $12,970 for families earning under $194,580.

3.  How is tax credit different from tax deduction?

A tax credit is much more beneficial than a tax deduction. A tax credit is subtracted from the total amount of taxes you owe. A tax deduction goes into the calculation of your income. In essence, a tax credit is a refund.

4.  Is there anything the tax credit does not cover?

The tax credit does not apply to surrogate parenting arrangements, stepparent or adult adoptions.

5.  What items are covered with the tax credit?

Qualifying adoption related expenses must be “directly related” to the adoption of an eligible child. These may include reasonable and necessary adoption fees, legal and court costs, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly involving a legal adoption.

6. What if I get reimbursements paid by my employer or another organization?

Then you must subtract your reimbursement amount from your total adoption costs.

7.  What if my domestic adoption does not go through, can I still claim the tax credit?

Yes, in domestic adoptions, the credit can be applied even if your adoption does not go through.

8.  What if my international adoption does not go through, can I still claim/file for the credit?

No. In an international adoption, you can only claim the tax credit if you have a finalization.

9.  What if my adoption takes more than a year?

The total amount of tax credit applies per child, not per year.

10.  What if I adopt more than one child within a one year period?

Again, the tax credit is per child, not per year. Therefore, if you qualify and adopt two children in one year, your tax credit for that year would be $26,380.

11.  What if the cost of my adoption expenses does not exceed the tax credit?

Then the total amount of your adoption would be covered by the adoption tax credit.

12.  When does the law get complicated and it is imperative I consult a tax professional?

The tax law gets very complicated for middle income families; the details and small print of how it works is hard to understand. Please consult your professional tax advisor for clarification.

13.  Does Ohio have an additional tax credit?

Yes. In addition to Federal tax credit, Ohio has a tax credit of $10,000 regardless of your income.

14.  What forms will I need for the Federal Tax Credit?

  • Form 8839 (Qualified Adoption Expenses) is the form you need to file.
  • Form 8839 – itemizing qualifying adoption-related expenses.
  • Form SS-5 – apply for Social Security Number (SSN) for child.
  • Form W-7 – to apply for an Individual Taxpayer ID Number (ITIN) if your child is a resident or non-resident alien who does not qualify for an SSN.
  • Form W-7A – to apply for an Adoption Taxpayer ID Number (ATIN) if you are in the process of adopting a US citizen or resident, and cannot get an SSN until the adoption is final.

15.  Where can I go for more information?

To view the IRS tax topic, go to http://www.irs.gov/taxtopics/tc607.html

This article was drafted by Attorney Mary Catherine Barrett who is an adoption advocate and teaches adoption law as an Adjunct Law Professor at Case Western Reserve University.

Attorney Mary Catherine Barrett is not a financial tax advisor. This information is not a substitute for professional tax advice and should not be relied upon without professional tax advice.