Adoption can create new families or expand existing ones. The expenses of adopting a child may also lower your federal tax. If you recently adopted or attempted to adopt a child, you may be eligible for a tax credit. You may also be eligible to exclude some of your income from tax. Here are ten things the IRS wants you to know about adoption tax benefits.
1. The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.
2. To be eligible, a child must generally be under 18 years old. There is an exception to this rule for children who are physically or mentally unable to care for themselves.
3. For 2012, the tax credit is nonrefundable. This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.
4. If your credit exceeds your tax, you may be able to carryforward the unused credit. This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013. You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.
5. Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion. Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return. E-file makes tax preparation easier and accurate. You can then print and mail your paper federal tax return to the IRS.
6. Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.
7. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you did not pay any qualified adoption expenses. See the instructions for Form 8839 for more information about this rule.
8. If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.
9. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you cannot claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
10. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on your income.
For more information, visit the IRS.gov website to see the Adoption Benefits FAQ page. Also, check out Form 8839 and its instructions. Both are available at IRS.gov or you can order the form by calling 800-TAX-FORM (800-829-3676).
Individuals Topics
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.
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 aQualified 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.
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.
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:
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:
|
Adopting
a child who is a U.S. citizen or resident.
|
|
IF
you pay qualifying expenses in…
|
THEN
take the credit in…
|
|
Any
year before the year the adoption is final
|
The
year after the year of the payment.
|
|
The
year the adoption is final
|
The
year the adoption is final.
|
|
Any
year after the year the adoption is final
|
The
year of the payment.
|
|
Adopting
a foreign child.
|
|
IF
you pay qualifying expenses in…
|
THEN
take the credit in…
|
|
Any
year before the year the adoption is final
|
The
year the adoption is final.
|
|
The
year the adoption is final
|
The
year the adoption is final.
|
|
Any
year after the year the adoption is final
|
The
year of the payment.
|
The following tables explain when to exclude employer-provided adoption assistance from your income:
|
Adopting
a child who is a U.S. citizen or resident.
|
|
IF
your employer pays for qualifying expenses under an adoption assistance
program in…
|
THEN
take the exclusion in…
|
|
Any
year
|
The
year of the payment.
|
|
Adopting
a foreign child.
|
|
IF
your employer pays for qualifying expenses under an adoption assistance
program in…
|
THEN
take the exclusion in…
|
|
Any
year before the year the adoption is final
|
The
year the adoption is final.
|
|
The
year the adoption is final
|
The
year the adoption is final.
|
|
Any
year after the year the adoption is final
|
The
year of the payment.
|
|
Note:
If your employer makes a payment in a year before the adoption is final, you
include the amount in your income for the year. When the adoption is final,
exclude the amount from your income on your return for that year.
|
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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