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.