The Adoption Tax Credit

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If you have adopted a child or are considering it, you may already know about the Adoption Tax Credit. The credit, which has been part of federal tax law since 1997, allows adoptive families to defray some of the costs incurred when they grow their families through adoption. It has helped bring together hundreds of thousands of families, many of whom would not have been able to grow their families through adoption without it.

The Adoption Tax Credit applies to all types of adoption (except step-parent adoption), including international, domestic private and domestic agency and public foster care adoptions. For domestic adoptions, the credit even applies to expenses for a failed or non-finalized adoption.

The credit works by giving adoptive families a dollar-for-dollar tax credit against their federal tax liability. For 2018, the maximum credit is $13,840 per child, though the amount of the credit a particular family may claim depends on that family’s income and qualified expenses. Families with an adjusted gross income up to $207,580 are eligible for the maximum credit; families earning between $207,580 and $247,580 are eligible for a partial credit; and families who earn above $247,580 are not eligible. Qualified expenses include adoption fees, attorney fees, and court costs among other things. Families who adopt a special-needs child from foster care can claim the maximum credit even if they have no qualified expenses.

Because the credit is non-refundable, families with lower incomes who have no federal tax liability often cannot take advantage of the credit. There has been a push in recent years to make the tax credit permanently refundable (as it was in 2010 and 2011) but to date no legislation has been passed to do that. Even as a non-refundable credit, though, it still helps many thousands of families every year!

Katie Zimmerman