Adoption Benefits FAQs

Q.1 What is new for the adoption credit?

For tax years beginning after December 31, 2011

1. The adoption credit is non-refundable.
2. The maximum amount of the credit is $12,650 that means you can reduce your 2012 tax bill by up to $12,650.
3. You can carry any unused credit forward up to five tax years.
4. For 2012 returns, the credit is eliminated if your modified adjusted gross income (MAGI) is more than $229,710 and it begins to phase out if your MAGI is more than $189,710.
5. The American Taxpayer Relief Act of 2012 (H.R.8) enacted on January 2, 2013 permanently extended the adoption credit and the adoption assistance programs for tax years beginning after December 31, 2012.
6. For 2013 returns, the maximum non-refundable credit is $12,970 and the credit is eliminated if your modified adjusted gross income (MAGI) is more than $234, 580 and it begins to phase out if your MAGI is more than $194, 580.

Q.2  Is there anything new in claiming the Adoption Tax Credit?

To claim the adoption tax credit for 2012, complete and attach Form 8839 to your federal tax return. Refer to the Form 8839, Qualified Adoption Expenses instructions and chart for additional information. When you file your paper tax return, you will need to attach the completed Form 8839 to your return and send it to the IRS.

You do not need to send in receipts or documents with your paper return, however, you should keep all the documents used to calculate your adoption tax credit for your records.

Q.3  What is the Adoption Tax Credit?

The adoption tax credit offsets qualified adoption expenses, making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt an eligible child may qualify for an adoption tax credit.

Q.4  Can I claim the Adoption Tax Credit?

Generally, you may qualify for the adoption credit if you adopted a child and paid qualified expenses relating to the adoption. The amount of the tax credit is as much as $12,650 for 2012. If you attempt to adopt a U.S. child, you may be able to claim the credit even if the adoption does not become final. If you adopt a U.S. child with special needs, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses, if the adoption is final. A child is a U.S. child if he or she was a citizen or resident of the United States (including U.S. possessions) at the time the adoption attempt began.

Q.5  What are qualified adoption expenses?

Qualified adoption expenses are reasonable and necessary adoption fees. They include: court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to the legal adoption of an eligible child.
Qualified adoption expenses do not include expenses: for adopting your spouse’s child, for a surrogate parenting arrangement, that violate state or federal law, paid using funds received from a federal, state, or local program,  paid or reimbursed by your employer or any other organization, or  allowed as a credit or deduction on a federal tax return.

You cannot claim a credit for the same adoption expenses used to claim the income exclusion.
Expenses connected with a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) qualify only if you actually adopt the child.

Q.6  Who is an eligible child?

An eligible child is: a child under the age of 18, or an individual who is physically or mentally incapable of caring for him or herself.

Q.7  What documents should I keep for my records?

You should keep the following documents: receipts for qualified adoption expenses, entry visas for foreign adoptions, final decree, certificate or order of adoption, home study by an authorized placement agency, child placement agreements or court orders, and determination of special needs status by a State or the District of Columbia.

Q.8  What is the income exclusion for employer-provided adoption benefits?

You may be able to exclude from your income amounts paid to you or for you by your employer under a qualified adoption assistance program. You may qualify for the income exclusion if you adopted or attempted to adopt a child and the program paid or reimbursed you for qualified expenses relating to the adoption. The amount of the exclusion is as much as $12,650 for 2012.  Special rules apply for when to exclude the income for foreign adoptions.
General Information

The following tables explain when you should take the credit:
 

The following tables explain when to exclude employer-provided adoption assistance from your income:
 

General Adoption Tax Credit information for Tax Year 2010 and 2011

The Patient Protection and Affordable Care Act (PL 111-148), also known as the Affordable Care Act , made the credit refundable for 2010 and 2011.  To claim the credit for 2010 and/or 2011, attach both Form 8839 and the required adoption-related documentation to your federal tax return. You cannot file a tax return with the adoption credit electronically. You must file a paper tax return.

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