2022 Adoption Tax Credit Information
Did you know you may be eligible for adoption tax benefits to offset your qualified adoption expenses?
Taxes can be confusing. To help you out, we’ll explain basics of the adoption tax credit and answer some common questions about it.
Keep in mind that this article should not be taken as financial advice, though. It is always a good idea to speak with a tax professional, too.
The Federal Adoption Tax Credit
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.
In January 2013, the Federal Adoption Tax Credit was made permanent. It’s a way for hopeful adoptive families to offset some adoption costs.
Is the Adoption Tax Credit Refundable?
The adoption credit is not refundable, which means that only people with tax liability (taxes owed) will benefit.
If you are unsure how this will affect your eligibility to use the adoption tax credit, then you should speak with a tax professional.
How Much is the Adoption Tax Credit?
The amount you can receive from the Federal Adoption Tax Credit depends on your financial situation.
Below is a table outlining the maximum amount available for the 2021 Federal Adoption Tax Credit as well as some previous years.
|
Tax Year |
Maximum Amount Available* |
|
Adoption Tax Credit 2016 |
$13,460 |
|
Adoption Tax Credit 2017 |
$13,570 |
|
Adoption Tax Credit 2018 |
$13,840 |
|
Adoption Tax Credit 2019 |
$14,080 |
|
Adoption Tax Credit 2020 |
$14,300 |
|
Adoption Tax Credit 2021 |
$14,440 |
*The maximum amount available will continue to grow each year with the cost of living. It should also be noted that the maximum amount available is per child.
If a child welfare agency deems a child hard to place, then the adoption tax credit for that child will remain flat.
This allows you to claim the maximum credit regardless of expenses. So, talk to your adoption professional to determine if you qualify for this.
The adoption tax credit income limit is based on modified adjusted gross income (MAGI). Every year, it’s recalculated based on the current cost of living. For the 2021 Adoption Tax Credit, the maximum amount available will be available for those with a MAGI below $216,660.
The credit will begin to phase out for families with a MAGI above that amount and will be unavailable to families with incomes of $256,660 or above.
Adoptive parents who work for companies with an adoption assistance program can also receive tax breaks.
Parents can receive up to $14,440 in reimbursement from their employer for adoption expenses without paying taxes on that benefit. But, you can’t double-dip, meaning you cannot take a tax credit for adoption expenses already reimbursed by your company.
Speak with a tax professional to make sure this is correctly noted in your W-2 Form. You can also read our guide to employer-provided adoption benefits to learn more about these adoption assistance programs.
How Does the Adoption Tax Credit Work?
According to the IRS, qualified adoption expenses make up the amount a family can claim on the adoption tax credit. These include items like:
Qualified expenses must be solely put toward adoption costs, meaning funds allowed as a credit or deduction under any other provision in the tax law cannot be applied toward the adoption tax credit.
Qualifying expenses must be accrued in a domestic, international or foster care adoption.
Unfortunately, there is no federal stepparent adoption tax credit or surrogacy tax credit. For a full list of adoption expenses the IRS does not qualify, visit their website to learn more.
For domestic adoptions, you can claim the tax credit for qualified expenses within the year the adoption is completed. If the adoption is not completed, then you can claim the credit the following year.
Be sure to keep a close record of your adoption, as the adoption tax credit could be audited by the IRS for authenticity. You’ll want to be ready with documents like:
If you need any help determining what forms you need and how to fill them out, American Adoptions can help. Contact us online at any time to get the help you need today.
State Tax Credits for Adoption
Some states offer an additional tax credit for adoption to their residents.
If you live in a state that offers a state-level adoption tax credit, then ask your tax professional if you could be eligible to receive these credits, too.
The Tax Credit for Adoption Disruptions
Families that experience an adoption disruption could also benefit from the adoption tax credit.
You may also be able to deduct qualifying adoption expenses from a disrupted adoption.
But, families must wait one year before filing for the credit. The maximum credit level still applies regardless of how many adoptions or disruptions a family experienced during the year.
Make sure you speak with a tax professional to see if your family is eligible for a failed adoption tax credit, as this situation can be pretty complex.
Dependency Tax Exemption
Adoptive parents can take the same dependency exemption on their income taxes for children they adopt as they would for biological children.
This applies whether the adoption has been finalized or not.
But, the child must already be placed with the family for them to eligible for dependency. Families must provide more than half of a child's support to list the exemption, too.
Claiming the Adoption Tax Credit before Finalization
Every year, adoptive families ask if they can file taxes without their child’s social security number, which is typically received after the adoption is finalized.
Adoption finalization typically occurs around six months after placement in a domestic infant adoption. This means your child could already be under your care when it is time to file taxes, but the finalization hearing hasn’t happened yet.
Your attorney should apply for an SSN along with the amended birth certificate after the finalization court hearing.
If you do not have these items yet, then your accountant can apply for a temporary adoption tax ID number. Typically, you can file your taxes with that number.
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This is a lot of information to soak in all at once. So, we understand if you have some more questions about the adoption tax credit.
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