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May 19, 2023

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Video: Tax Credits When Adopting a Child

The federal tax benefits include both a tax credit and an exclusion of employer-provided adoption assistance from your taxable income. But to provide relief from some of these fees and expenses, the IRS offers an adoption tax credit alongside other favorable tax treatment related to employer-provided adoption assistance. Taxpayers can receive a tax credit for all qualifying adoption expenses up to $14,300 in 2020. Taxpayers may also exclude from income qualified adoption expenses paid or reimbursed by an employer, up to the same limit as the credit. Taxpayers can use the tax credit and the income exclusion but cannot claim the same expenses for both.

• Growing one’s family through adoption provides prospective parents with an opportunity to experience the joys of raising children and providing them with loving and permanent homes.
• You can only claim a portion of the credit if your MAGI falls between the range listed for that tax year.
• In addition to this exclusion, you also are permitted to claim the adoption tax credit for the remaining amount of adoption expenses.
• Since it is not refundable at this time, it will not cover self-employment tax, early pension distribution penalty, or first-time homebuyer payback.
• A document known as the Final Judgment of Adoption is required for all adoptions and additional documents are dependent on the adoption type.

Likewise, if you paid $25,000 in expenses, you can only claim the maximum credit value. To get more information on the 2023 adoption tax credit, you can fill out our online contact form. Adoption tax credits are generally claimed in the year that they are completed. For example, if you complete an adoption in 2023 when you fill out your taxes in 2024, you should have your records ready from your adoption. So, we understand if you have some more questions about the adoption tax credit. That’s why you can always fill out our online contact form to get more free information now.

Adoption Tax Credit Questions

If you don’t know whether the child qualifies in the special needs category, you should review your adoption paperwork and check with your state agency or social worker. No, American Adoptions has established relationships with some of the best adoption attorneys in the nation. You have the right to retain your own attorney, but doing so may be an additional, unnecessary expense. This presentation provides information on sexual abuse prevalence, dynamics and offender characteristics, how children disclose abuse, and how parents can effectively respond to disclosures and proble…

However, if the expenses exceed $14,890, the adopters can claim up to, but no more than, $14,890, per child. It can erase any tax liability you owe the IRS, but you won’t receive the balance as a refund if the credit is more than what you owe. You would still receive a credit for $10,000 if you owe $10,000 even if you qualify for the full tax credit. To claim the adoption credit, complete Form 8839 and attach it to your Form 1040. You no longer need to attach adoption documentation with your federal tax return but should keep the documentation for your records. Speak with a tax professional to ensure that you have noted your adoption in your W-2 Form.

What are qualified adoption expenses?

The 2022 adoption tax credit is NOT refundable, which means taxpayers can only use the credit if they have federal income tax liability (see below). For tax year 2022, the maximum dollar amount you can receive from the adoption tax credit is $14,890. However, you can only claim this credit for qualifying adoption expenses paid out-of-pocket, if you meet certain income thresholds. If your expenses are below this dollar limit, you may carry forward the unused credit for up to five years.

• The Adoption Tax Credit for tax year 2023 (which you would file in 2024) is $15,950, a $1,060 jump from 2022.
• The Adoption Tax Credit helps families offset some of the costs of adoption, especially for children with special needs.
• According to the IRS, employer-provided adoption benefits are amounts your employer paid for qualified adoption-related expenses to you directly or to a third party on your behalf.
• However, you can only claim this credit for qualifying adoption expenses paid out-of-pocket, if you meet certain income thresholds.
• Example — A couple adopted two children from China and had $40,000 in legal, travel, and agency fees.

For the 2023 tax year, adoptive families with modified adjusted gross incomes of up to $229,230.00 should be eligible to receive the full $15,950.00 adoption tax credit! The tax credit completely phases out for families with modified adjusted gross incomes of $279,230.00 or more. Example 1 — A couple adopted two brothers who had been determined to have special needs.

Credits & Deductions

Parents who are adopting from the U.S. and claiming qualified adoption expenses can claim the credit the year of finalization or the year after they spent the funds. Taxpayers who adopted or started the adoption process in 2021 may qualify for the adoption credit. This credit can be applied to international, domestic private, and public foster care adoption. According to the IRS, employer-provided adoption benefits are amounts your employer paid for qualified adoption-related expenses to you directly or to a third party on your behalf.

• Other adopters can claim a credit based on their qualified adoption expenses, which are the reasonable and necessary expenses paid to complete the adoption that have not been reimbursed by anyone else.
• This credit will supersede the adoption tax credit when reducing the tax liability.
• The IRS defines qualified adoption expenses as any reasonable and necessary expenses directly related to the legal adoption of any child.
• “Special needs” adoptions automatically qualify for the maximum credit regardless of actual out-of-pocket expenses.
• They should still file Form 8839 with their 2022 tax return so that they can carry the credit forward for up to five additional years in case their tax liability goes up in the future or the credit becomes refundable.
• However, if your employer reimburses or pays you for any of the costs, you can’t include that in your credit.

To claim these expenses towards your credit, you’ll need to file Form 8839 with your tax return. The IRS will only provide a credit up to the amount of the expenses, not to exceed the credit maximum. This is for all adoption types; international, domestic, private, or public. This page will walk you through the benefits the ATC provides, eligibility requirements and the most recent updates made for the incoming year.

Taxes done right, with experts by your side

To claim the Additional Child Tax Credit, parents must complete IRS Schedule 8812. Qualified adoption expenses don’t include any expenses you paid to adopt the child of your spouse. In other words, adopting your stepchildren doesn’t https://turbo-tax.org/what-is-the-adoption-tax-credit/ qualify for eligible adoption expenses. The credit amount you can claim relates to how much you spend on an adoption. For example, if you paid $8,000 in qualified adoption expenses in 2022, you can’t claim the full $14,890 credit.

Contact a financial advisor for assistance if you need help with this or any other tax credits you qualify for. You must adopt an eligible child and pay qualified adoption expenses out of your own pocket to claim this credit. Eligible children include those who are age 17 or younger, or a child of any age who is a U.S. citizen or a resident alien and is physically or mentally incapable of caring for themselves. Taxpayers who adopt a child can qualify for the adoption tax credit when they pay out-of-pocket expenses related to the adoption. These expenses include adoption fees, court and attorney fees, and travel expenses.

However, any credit in excess of your tax liability may be carried forward for up to five years. The Adoption Tax Credit helps families offset some of the costs of adoption, especially for children with special needs. In 2023, the existing credit offsets qualified adoption expenses up to $15,950 per adopted child. Qualified expenses can include court fees, attorney fees, agency fees, travel costs, or other expenses necessary. It is a federal tax credit that allows many adoptive parents to recoup a significant portion of their adoption expenses!

You can exclude these benefits from your taxable income up to $14,890 for 2022. But you can’t use the same expenses for the exclusion as you do for the credit. You can, however, exclude up to the maximum allowable and https://turbo-tax.org/ then take the maximum credit for additional unreimbursed expenses. Although the exact details of the adoption tax credit have shifted over the years, it has been around in one form or another for quite some time.

IRS Oversight

In the case of the adoption credit, special needs don’t necessarily mean a child has a disability or medical condition. For the adoption credit, a child with special needs is one who’s classified as “hard to place” for adoption without financial assistance. 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.

Going forward, the amount of the credit will slightly increase each year because it is based upon a “cost of living” calculation. The numbers that define the lower and upper limits of income eligibility also will fluctuate since they are based upon current cost of living. Families may claim as a tax credit on their 2022 tax returns up to $14,890 per child in qualifying adoption expenses. Therefore, the amount you can claim depends on the number of children you adopt, for which there is no limit.