Friendly Guidance on the Adoption Tax Credit

Posted by Jaye Helm, CPA on 2/15/20 2:06 PM
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It’s that time of year again when we gather all our paper and forms together, file our taxes, and hope for the best. Will our refund be enough to take a vacation, or will we have to pay? Is it a W-2 or W-4? Why didn’t my company withhold enough? What is a CPA anyway? TurboTax or H&R Block?

Adoption Tax CreditIf one of your questions is about the adoption tax credit, I congratulate you because it means you have decided to be on the adoption journey of providing a loving and caring family for a child. Let me help by answering a few frequently asked questions.

As a reminder, the adoption tax credit is available for adoptive parents to cover qualified adoption expenses, which either adds to your refund or reduces what you owe. A credit is much more valuable than a deduction because it actually puts money in your pocket. For tax year 2019, the adoption tax credit is $14,080 but starts to phase out for household incomes above $211,160.

One of the key points is the timing of when you can take the adoption tax credit.

  • For domestic adoptions (including domestic infant and foster care adoptions) that were legally finalized in 2019, you can take the adoption tax credit on your 2019 taxes, assuming you had adoption expenses during 2019. If you paid expenses in 2019 but didn’t legally finalize the adoption during 2019, you will have to wait until next year’s taxes to claim the credit. The good news in that scenario is you can claim those 2019 expenses towards the credit next year, whether you legally finalize the adoption in 2020 or not. Plus, the credit generally increases by a few hundred dollars every year so that helps. Domestic adoptions that fall through or are not successful for any reason are treated the same way as non-finalized adoptions for tax credit purposes: you have to wait a year before claiming the adoption expenses for the tax credit.
  • For adoptions of children with special needs from state foster care, the adoptive parents do not have to have any adoption expenses, in order to claim the adoption tax credit. Even if the adoption agency does not charge any fees, the full amount of the credit can still be taken. For an adoption to qualify as special needs, the following three things must be true: 1. The child must be a U.S. citizen when the adoption process begins, 2. A state must have determined that the child cannot be returned to his/her biological parents, and 3. The state must have made the determination that the child has special needs.
  • Tax credit rules for international adoptions are slightly more stringent. They require that the adoption be finalized, in order for the adoption tax credit to be available. Fortunately, you can claim all expenses from past years towards the credit. Unfortunately, the credit is not available for international adoptions that fall through, are not successful, or do not finalize for any reason.

One final caveat on the adoption tax credit: if you are married, you cannot use “Married Filing Separately” as a filing status. That is a critical piece to consider on your taxes. There are some ways around this, but they are generally difficult so it is best to look at filing jointly for the year that you take the adoption tax credit.

I hope this is helpful to you! I’m am more than happy to answer any questions on the adoption tax credit, including employer-provided adoption benefits. Feel free to leave a comment below and I'll respond. We are grateful to be on this journey with all of our Gladney Families and want to help however we can.

Options For Financing Your Adoption



Kelly Sikkema


Topics: Adoption Finance

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