What is the IRS adoption credit?

The IRS adoption credit allows for the offset of adoption expenses so that the process is less of a  financial burden on families. Taxpayers who adopt a child and have qualified expenses may receive an adoption credit.

In 2011, the tax adoption credit was as high as $13,360 for some families. A taxpayer adopting a child with special needs or a disability may be able to claim the entire credit regardless of expenses as long as that adoption is finalized. In other cases, some taxpayers are eligible for the credit if the adoption process is started but not finalized.  However, there are limits for taxpayers with a modified adjusted gross income larger than $185,210 and the credit is not available at all if the modified adjusted gross income is larger than $225,210.

There is also an income exclusion if employer-provided adoption benefits played a role in your situation. Some employers provide a qualified adoption assistance program and provide payment or reimbursement for those qualified adoption expenses to their employees. The amount of the exclusion depends on the situation and specific year, but can be up to $13,360.

This highlights a conversation about what are considered a qualified expense. Qualified expenses include necessary adoption fees, attorney fees, expenses for travel, and court costs. The expenses away from home can also include meals and lodging for the time spent away from your home in pursuit of the adoption. Even if you made an attempt to adopt an eligible child that was not finalized, you may be eligible for this credit. However, in most situations, qualified adoption expenses do not include: the adoption fees or expenses related to adopting a spouses child, expenses from surrogate parenting agreements, any adoptions that violate laws, or those adoptions paid by a government program.

It is always wise to contact your accountant for more specific questions about adoption tax credits or to see how these rules may apply to your situation.

*Note: These rules apply to adoption of US children only. Separate provisions apply to the adoption of a foreign child, and these rules, credits, and amounts are subject to change by the IRS.

Tana Benner
Tana Benner is an adoption attorney with Columbia Family Law Group. Her practice is focused in the area of family law and she has particular interests in adoption and helping children and victims of domestic violence.