The Adoption Tax Credit

What You Need to Know

This is not a substitute for professional financial advice and should not be relied upon without consulting your tax advisor.

If you had adoption-related income and/or expenses, any one or a combination of benefits, credits and exclusions could substantially reduce your tax liability.

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NOTE: The tax credit does not cover expenses for adoption of a spouse's child (stepparent adoption).

The Adoption Tax Credit is a valuable benefit for adopting families, but one of the most complicated tax law provisions applicable to middle-income families. The details of how it works, acceptable expenses, who qualifies, and other "small print" items have been harder to understand.

The following information is presented in two parts:

1. What you need to know
2. IRS definitions and explanations

The first step is to learn what the tax credit covers, and how it works with other incentives, such as employer-paid adoption benefits.

• The tax credit applies to domestic and international adoptions, but the procedure is not the same. Credit for expenses for international adoptions can be claimed only after finalization; for domestic adoptions, the credit can be applied even if the adoption does not go through.
• The full credit can be taken for domestic special needs adoption even when the qualifying expenses don't reach that limit.
• The credit of $12,150 is per child, not per year, so even if you claim expenses paid out over more than one year for one adoption, the total credit amount remains $12,150.

Then, you'll want to

• determine your eligibility;
• learn how the credit works with your particular adoption;
• develop a system to track and document expenses;
• do your taxes, work with a professional.

Forms

Form 8839 is the form you need to file. The form will include expenses covered by the Adoption Tax Credit, any payments or reimbursements you may have received from Employer Adoption Assistance Benefits, and your child's Social Security or Tax ID number (required for filing).

• To take the credit or exclusion, complete Form 8839 (PDF), Qualified Adoption Expenses. You will attach Form 8839 to Form 1040 (PDF) or Form 1040A (PDF) and report the credit on line 52 of Form 1040 or line 34 of Form 1040A.
• Visit the download page to view and/or download the forms you'll need for adoption-related tax filing. Forms are available in various formats, and include:
  • Form 8839 - for itemizing qualifying adoption-related expenses.
  • Form SS-5 - to apply for a Social Security Number for your child.
  • Form W-7 - to apply for an Individual Taxpayer ID Number (ITIN) if your child is a resident or non-resident alien who does not qualify for an SSN.
  • Form W-7A - to apply for an Adoption Taxpayer ID Number (ATIN) if you are in the process of adopting a US citizen or resident, and cannot get an SSN until the adoption is final.

Additional Benefits & Guidance

Many states provide reimbursement of a certain amount of non-recurring adoption expenses. Be sure to check with your state tax office to learn more about it, and contact your local IRS office if you need more information or direct assistance with preparing your tax return.

Finally, consult your own tax advisor to make sure you haven't overlooked anything!