Adopting a child is an expensive and complicated process, with many costs that can add up quickly. Fortunately, the United States government has established the Adoption Tax Credit. This credit can help to offset some of the costs associated with the adoption process. A tax credit is an amount of money that taxpayers can claim which reduces the total taxes owed. It can be used to offset any federal or state taxes due. Tax credits provide a greater financial benefit than deductions since they directly lower the amount of taxes you owe.
The Adoption Tax Credit is a federal tax credit available to individuals who adopt children or incur adoption-related expenses in order to adopt a child. This credit can be claimed on your taxes and can provide significant savings for those who are eligible. It covers certain qualifying expenses related to adoption such as legal fees, court costs, travel expenses, and even post-adoption counseling services for adopted children. With this credit in place, it’s easier than ever for families to bring home their new family member without having to worry about the financial aspects of adoption.
What Expenses are Eligible for the Adoption Tax Credit?
The Adoption Tax Credit covers a range of qualifying expenses related to adopting a child. These can include a variety of adoption fees such as:
- agency fees
- legal costs such as attorney fees, home studies, and others
- court costs
- travel expenses such as airfare and lodging associated with the adoption process.
- Any other expense directly related adoption of an eligible child.
Along with these services and resources, post-adoption counseling services are also covered by the credit that expenses are covered by the adoption credit.
It’s important to also note that expenses may be deductible before an eligible child is identified by the taxpayer. This can happen when a prospective adoptive family is paying for legal expenses, attorney fees, agency fees, or home study fees, before being matched with a child. These parents can claim these expenses without knowing who the child will be.
This credit will reduce your current year’s taxes, and any remaining amounts not covered by the year’s limit may still receive the tax benefit for up to five subsequent years if you choose to apply them as part of future filings.
How much can be claimed on the Adoption Tax Credit?
The adoption tax credit amounts can change as the legislature changes tax laws. Currently, for the 2022 tax season, eligible families who began the process during 2022 can claim up to $14,890 in eligible adoption expenses for each eligible child.
Who Qualifies for the Adoption Tax Credit?
Anyone who adopts or is in the process of adopting an eligible child or children may qualify for this tax credit. However, there are income limits on who can claim this tax credit. The income limit is considered after the Modified Adjusted Gross Income (MAGI) is applied to your tax return.
- For the 2022 tax season, the minimum MAGI tax limit is $223,410.
- If your MAGI is below $223,410 you’re eligible to claim all expenses up to the amount you were eligible for on the year you began your adoption process.
- If your MAGI is between $223,410 and ends at $263,410, your eligibility will be phased out, meaning reduced eligibility.
- If your MAGI amount for 2022 is $263,410 or more, you are excluded from the adoption tax credit.
Who is considered an eligible child?
An eligible child is any individual child under the age of 18 or one who is physically or mentally incapable of caring for themself.
Applies to these adoption types
- Domestic Adoptions
- Private Adoptions
- Kinship Adoptions — does not apply to taxpayers who adopt their spouse’s child.
- Public – Foster Care Adoptions for out-of-pocket expenses (does not apply to expenses covered by the state foster care agency).
- International Adoptions
How to claim the Adoption Tax Credit on your Tax Return
To claim the Adoption Tax Credit on your US tax return, you will need to fill out and submit IRS Form 8839, Qualified Adoption Expenses. This form will allow you to report all of your qualified adoption expenses, and calculate the amount of credit that you are eligible for. You’ll need to include information about the adopted child.
The Adoption Tax Credit can be a great help to those who are looking to adopt. It covers many of the costs associated with adoption, such as legal fees and travel expenses, making it easier for families to bring home their new family members without having to worry about the financial strain. If you’re eligible for this credit, make sure you take advantage of it by filing Form 8839 when submitting your taxes. By doing so, you’ll receive much-needed assistance in covering some, or all, of the costs related to adopting a child and start off on the right foot in building your forever family.
Of course, we’re happy to help you file this form along with your tax return to help ensure you are getting the maximum benefit from this tax credit.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives do not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.