Tax season has arrived, and if you’re a recent adoptive family, then you’re eligible for the federal adoption tax credit. This adoption tax credit helps offset the costs that come with the adoption process.
The adoption tax credit first became available to taxpayers in the U.S. when the Small Business and Job Protection Act of 1996 was passed. This act, among other things, sought to make adoption more affordable for families.
In 2012, the American Taxpayer Relief Act made the adoption tax credit a permanent part of the tax code.
The tax credit for adoption covers your tax liability up to a certain amount. For most families, this means an increase in your tax refund because you’ll usually get your withholding back. Child tax credit becomes additional child tax credit once your tax liability has been covered.
How Do You Qualify for The Federal Adoption Tax Credit?
You qualify for the tax credit for adoption if you adopted a child and paid for expenses relating to adoption. This credit is non-refundable, which means it’s limited to your tax liability for the current year.
How Many Years Can You Claim the Adoption Tax Credit?
The tax year that you can claim the tax credit for adoption depends on:
- When the adoption-related expenses are paid
- What type of adoption it is
- When the adoption was finalized
The timeline for claiming the federal adoption tax credit for international and foster care adoption must be finalized before claiming the adoption tax credit.
With domestic infant adoptions, you can either file for the credit when the adoption is finalized or in the tax year after your out-of-pocket adoption expenses have been paid.
How Much Is the Adoption Tax Credit for 2023?
There’s no set amount when it comes to your tax credit for adoption. Your adoption tax credit is determined by how much you spent on adoption-related expenses. Adoption-related expenses are defined as any necessary expense for the adoption and can include:
- Court fees
- Agency fees
- Attorney fees
- Travel and meals
- And more
For tax returns claimed in 2024, meaning the adoption was finalized in 2023, the maximum amount you can receive as a tax credit for adoption is $15,950 per adopted child.
Why Does the Adoption Tax Credit Change Yearly?
The tax credit for adoption changes yearly because it’s adjusted for inflation. As a result, the modified adjusted gross income (MAGI) is also adjusted yearly.
The maximum amount from the federal adoption tax credit a family can receive has increased over the past several years from $14,080 in 2019 to $15,950 in 2023.
What Is the Income Eligibility for the Adoption Tax Credit in 2023?
There is an income threshold that determines your eligibility for the adoption tax credit. These thresholds are determined by your modified MAGI and inflation.
If that MAGI is between $239,230-$279,230, then you can claim partial credit.
If your MAGI is below $239,230, then you can claim full credit. If it’s more than $279,230, then your credit will be zero.
Do I Need Any Paperwork from the Adoption for My Federal Adoption Tax Credit?
Yes, you do need certain documents depending on the type of adoption. No matter what type of adoption you chose, the final judgment of adoption is a required piece of paperwork.
With adoptions from foster care, a subsidy agreement that declares the child has a disability is required. When it comes to domestic and international adoption, you need your completed home study and a receipt of all qualifying expenses.
