Adoption Tax Credit 101

It’s that time of the year again — tax season. I don’t know about you, but my email has been filling with messages from TurboTax and similar companies announcing this. In light of the government shut down, and the threat of another one, I made sure to file early. If you haven’t yet, and are still waiting for some W2’s to arrive, don’t worry. There’s still time. Official tax day this year is: Monday, April 15th, 2019.

That said, though, it’s always good to stay up-to-date with the latest tax information. If you’ve researched anything related to adoption finances, you’ve probably run into the term, “The Federal Adoption Tax Credit.” But what all does it entail, and how does the tax credit work?

Adoption Tax Credit

To begin, the Adoption Tax Credit helps families offset the high cost of adoption and allows them a more affordable option. It was established in 1997 and signed into law in the American Taxpayer Relief Act of 2012. In order to claim this non-refundable tax credit, families have must a federal tax liability. Put simply, a federal tax liability is the amount of federal income tax that you owe the IRS for the year. Even if you get a refund, you still have that tax liability. A refund is nothing more than the amount you overpaid to the government. The tax liability is the amount kept by the IRS in federal income taxes.

So, let’s say your employer withholds $5,000 in federal income taxes, and you get a refund of $3,000. The leftover $2,000 would be considered your federal tax liability. Thanks to the Affordable Care Act, any unused portion of your Adoption Tax Credit can be saved and carried forward for up to five years to help reduce the total amount of your federal tax liability.

For the year 2018, the Adoption Tax Credit is up to $13,810 per child. So, for instance, if your modified adjusted gross income (MAGI) is greater than $247,140, you cannot claim the Adoption Tax Credit. Along the same lines, if your MAGI is between $207K and $240K, you can only claim part of the credit.

Eligibility for the Adoption Tax Credit

The Adoption Tax Credit applies to all types of adoption. International adoptions, domestic and private adoptions, and public foster care adoptions. The only type the Adoption Tax Credit does not cover is step-parent adoption.

Per the IRS, the following “qualified adoption expenses” have been deemed “reasonable and necessary” in regards to adoption:

  • Adoption and attorney fees
  • Court costs
  • Travel expenses
  • Re-adoption expenses (i.e. regarding the adoption of a foreign child)

The IRS also has a list of expenses that they do not accept, so be sure to check those out for more information. Also, remember to always talk to your tax professional if you aren’t sure whether or not you qualify, or if you have any questions or concerns regarding the Adoption Tax Credit.

How to File for the Adoption Tax Credit

For anyone who is concerned about the recent government shutdown, and the media hype that’s circulated about potential delays with tax refunds this year — don’t worry. The IRS has confirmed tax returns will be processed on schedule.Adoption Tax Credit

When filing your tax returns this year, you can claim the Adoption Tax Credit by using Form 8839. This is the form for Qualified Adoption Expenses. You can have a file status of: Married Filing Jointly, Qualified Widow(er) or Head-of-Household. If you are married, you are required to file a joint return to claim the credit. When filing Married Filing Separately, you’ll need to meet special requirements in order to claim the credit.

Once filled out, Form 8839 needs to be attached to your Form 1040 or Form 1040A. This will provide proof for the IRS. Before submitting, make sure to carefully review both of the forms and read the instructions to ensure you claimed everything correctly.

Tax Season 2018

Filing taxes can be a pain to do each year, but if you go through each step carefully to make sure you’re understanding all that’s required, you’ll be good to go. If filing for 2018 is your first time claiming the Adoption Tax Credit, and doing it on your own seems a bit too daunting, don’t stress.  Tax professionals are always ready to assist you. If, for whatever reason, your tax professional is unfamiliar with how the process to claim the Adoption Tax Credit works, it’s alright to provide them with a copy of the instructions found on the IRS website.

For more information on adoption or if you are currently in the process of adopting a baby and have any questions or concerns, feel free to contact, Adoption Choices of New York.

Support Adoption Choices

Adoption Choices, Inc. is partnering with Crowdrise, a fundraising website for nonprofits, to help our adoptive parents and birth parents with much needed financial assistance. We understand that expenses keep clients from fulfilling their dreams. Both with birth parents making a plan for adoption, and with adoptive parents growing their family. It is our mission to provide financial assistance through grants and scholarships, awarded annually in November, in honor of National Adoption Month. Funds assist adoptive parents with matching and placements, adoption finalization and helping birth mothers improve their lives through higher education — and much more.

But, we can’t do it alone. Please read up on our programs and donate money where you are able. Your donation will make a huge impact.

About the Author

Rachel RobertsonRachel Robertson is a published journalist, book editor, certified Publishing Specialist, and aspiring novelist. She graduated from Central Washington University (CWU) in March 2018, having found her writing voice within the Creative Nonfiction genre and grew to work as a freelance book editor for small presses all across the United States.

In June 2018, she embarked on an internship with Virginia Frank and came on board with Adoption Choices Inc., Not for Profit 501(c)(3), in December 2018. Between her mutual passion with adoption and surrogacy, and her own personal history with adoption, Rachel is excited to research and share topics each week that will spread awareness and better serve the faithful patrons of Adoption Choices Inc.

When Rachel isn’t haunting her local Starbucks or Barnes and Noble, she’s avidly pouring over her Writer’s Digest subscription or cozying up with a cup of tea and book. She currently resides in the beautiful Pacific Northwest with her beloved wife and Border Collie.

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Sources:

“The 2018 Federal Adoption Tax Credit.” AdoptHelp, 26 Feb. 2018, www.adopthelp.com/the-2018-federal-adoption-tax-credit/.

“The 2018 Adoption Tax Credit And What You Need To Know.” Grants For Adoption | Fund Your Adoption, fundyouradoption.tv/adoption-tax-credit/.

“Adoption Tax Credit 2018.” The North American Council on Adoptable Children, 15 Oct. 2018, www.nacac.org/help/adoption-tax-credit/adoption-tax-credit-2018/.

“Changes to the Adoption Tax Credit for 2018.” Creating a Family, 19 Nov. 2018, creatingafamily.org/adoption-category/changes-to-the-adoption-tax-credit-for-2018/.

“Nine Facts About the Adoption Credit.” Internal Revenue Service, www.irs.gov/newsroom/nine-facts-about-the-adoption-credit.

“The Adoption Tax Credit.” Efile.com Taxes Made Simple, www.efile.com/tax-credit/tax-credit-adoption/.

“Topic No. 607 Adoption Credit and Adoption Assistance Programs.” Internal Revenue Service, www.irs.gov/taxtopics/tc607.

“What Does ‘Tax Liability’ Mean? Is That the Amount I Still Owe?” TurboTax Support, 6 Nov. 2018, ttlc.intuit.com/questions/2719896-what-does-tax-liability-mean-is-that-the-amount-i-still-owe.

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