Answers to Six Common Questions about the Adoption Tax Credit
Taking advantage of tax credits can greatly reduce adoption expenses, even after you have your baby. Changes to the law allow the credit to adjust each year based on the fed’s cost-of-living calculation for the year of adoption finalization.
For adoptions finalized in 2023 (tax returns claimed in 2024), the maximum amount a family can receive as credit is $15,950 per adopted child. Next year it will be higher.
Summary of Credit by Year Finalized:
| 2024 | $16,810 |
| 2023 | $15,950 |
| 2022 | $14,890 |
| 2021 | $14,440 |
| 2020 | $14,300 |
| 2019 | $14,080 |
Unlike a tax deduction, which lowers gross income, a tax credit is a dollar-for-dollar reduction in tax liability. Depending on the annual tax liability, you may receive back 100% of the taxes withheld from your paycheck. If the credit exceeds your annual tax liability, you can carry forward the credit balance for up to 5 years.
- How Do I Make Sure I Get Every Penny?
The secret to being reimbursed for the maximum you are eligible is good record keeping and holding onto expense receipts. While some adoptive parents will be fortunate enough to have all of their expenses occur during the calendar year of adoption finalization, most will have expenses that fall outside of the finalization year. When this happens, you risk forgetting pre-finalization expenses from a year or more prior.
- When Can I Claim the Adoption Tax Credit?
The short answer is right now. Any adoption expenses incurred in 2022 for adoptions that were finalized in 2023 should be claimed on the 2023 tax return. In addition, adopting parents do not have to wait for finalization to access the credit when seeking to adopt a U.S.-born child. Qualifying adoption expenses can be claimed on tax returns the year after the expense is incurred. This means that even if you do not complete the adoption process or your adoption takes longer than average, you can be reimbursed for qualifying expenses along the way.
The adoption tax credit can only be claimed after the adoption is finalized for international adoption.
- What if I Was Previously Eligible for the Adoption Tax Credit and Did Not Claim it in the Year of Eligibility?
You may be eligible to file an amended return to claim the Adoption Tax Credit for previous years. Consult a qualified tax attorney, CPA or licensed tax professional to determine specific eligibility.
- What Are Qualifying Adoption Expenses?
According to the IRS, any adoption expenses must be reasonable, necessary and directly related to the child’s adoption. Qualified expenses are any expenses necessary for the adoption. For example, court fees, agency fees, attorney fees, dossier, travel and meals, and any other required expenses. Re-adoption expenses related to the intercountry adoption of a child also qualify. Generally, the only adoption-related expenses that do not qualify are birth mother expenses.
An expense may be a qualified adoption expense even if the expense is paid before an eligible child has been identified. For example, prospective adoptive parents who pay for a home study at the outset of an adoption effort may treat the fees as qualified adoption expenses.
- Does Everyone Get the Full Amount? What is the income eligibility criteria for the adoption tax credit?
Most adopting parents will qualify for the full Adoption Tax Credit. However, there are income restrictions. In 2023, families with a modified adjusted gross income below $239,230 can claim full credit. Those with incomes from $239,230 to $279,230 can claim partial credit, and those with incomes above $279,230 cannot claim the credit.
Employer-provided adoption benefits can also affect the amount of tax credit available. The amount paid by the employer needs to be deducted from the total adoption cost first. The remaining balance will be the maximum tax credit that can be claimed.
- What About Adopting My Spouse’s or Domestic Partner’s Child?
While the adoption tax credit does not apply to expenses incurred to adopt the child of the taxpayer’s spouse. Unmarried domestic partners who live in states that allow co-parents or same-sex second parents to adopt their partner’s child may qualify for the credit.
To learn more about the Adoption Tax Credit visit the IRS website at https://www.irs.gov/taxtopics/tc607.
To file for the Adoption Tax Credit, complete Form 8839.pdf, Qualified Adoption Expenses, using Form 8839 Instructions.
To learn more about covering the cost of adoption, watch the “Making Adoption Affordable – Ways to Pay for Adoption” Facebook Live recording with Adoption Attorney E. Parker Herring.
Starting Your Adoption Journey? If you, or someone you know, is considering adoption and would like to learn more, call A Child’s Hope at 919-839-8800. Watch our placement day videos to hear adoptive parents share their adoption stories.
Pregnant? If you are a birth mother and are looking to place your child in a loving home, contact our Pregnancy Hotline to speak with a counselor: call or text (919) 971-4396
Questions about the legal process of adoption in North Carolina, visit parkerherringlawgroup.com.