TAX CREDIT
ADOPTION TAX CREDIT FOR ADOPTIVE PARENTS
The Adoption Tax Credit is great news for many adoptive parents! It is a federal tax credit that allows many adoptive parents to recoup a significant portion of their adoption expenses! For the 2024 tax year, adoptive families with modified adjusted gross incomes of up to $252,150.00 should be eligible to receive the full $16,810.00 adoption tax credit! The tax credit completely phases out for families with modified adjusted gross incomes of $292,150.00 or more.
For the 2025 tax year, adoptive families with modified adjusted gross incomes of up to $259,190.00 should be eligible to receive the full $17,280.00 adoption tax credit! The tax credit completely phases out for families with modified adjusted gross incomes of $299,190.00 or more.
Additionally, there is also an ILLINOIS ADOPTION TAX CREDIT available! For additional information on the Illinois Adoption Tax Credit Credit See:
https://www2.illinois.gov/rev/research/publications/bulletins/Documents/2019/fy-2019-02.pdf
Special Rule for SPECIAL NEEDS CHILDREN / DCFS Wards
Special Rule for adoptive parents of SPECIAL NEEDS CHILDREN (as determined by the state) may qualify for the full $14,890.00 (2022 rate) tax credit regardless of whether or not they have incurred any actual expenses. For more information see http://www.irs.gov/taxtopics/tc607.html
Tax Credit vs. Tax Deduction
A Tax Credit is a dollar for dollar tax reduction in your overall tax liability. A Tax Deduction lowers your income, which in turn lowers your taxes according to your tax bracket.
Limitations of the Adoption Tax Credit
For the 2024 tax year the credit starts to phase out for families with modified adjusted gross incomes over $252,150.00 and completely phases out at $292,150.00.
IMPORTANT NOTE: This is NOT a refundable tax credit. You must have taxable income to benefit from it.
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For international adoptions the following link provides detail on how the IRS will treat the adoption tax credit for different visa's and different situations. Page 5 and 6 provide the answers. www.irs.gov/irb/2005-26_IRB/ar14.html.
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For domestic adoptions, the credit may be taken in the year that follows the year in which the expenses are incurred as well as in the year in which the adoption was finalized. Note: In domestic situations, the credit is available for each effort to adopt an eligible child even if the adoption is not completed.
Qualifying Expenses
Qualifying expenses are those that are "reasonable and necessary" for the adoption which include: Agency fees, homestudy fees, court fees, attorney fees, traveling expenses while away from home, and other expenses that are directly related to the adoption.
Non-Eligible Adoption Expenses
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Costs of adopting a spouse's child
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Expenses taken as a credit or deduction elsewhere on a tax return
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Expenses paid for through an employer program
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Expenses paid for by federal state or local funds
Employer Adoption Assistance Exclusion
For the 2024 tax year up to $16,810.00 in adoption assistance provided by an employer may be excluded from an employee's taxable income!
Need More Information on the Adoption Tax Credit?
IRS Information for the adoption tax credit is available at IRS website where they have a publication for Frequently Asked Questions about the Adoption Tax Credit at:
http://www.irs.gov/taxtopics/tc607.html
http://www.irs.gov/pub/irs-pdf/f8839.pdf
Try http://www.nfpaonline.org/taxinfo. This organization has been providing informative yearly guides on the adoption tax credit.
Another great resource is is provided by the North American Council on Adoptable Children at:
http://www.nacac.org/taxcredit/taxcredit.html.
This information is to serve as a guideline only and should not serve as a definitive source or a substitute for professional tax advice!