Tax Credit

Adopting Parents We Have Good News – Adoption Tax Credit

Adoption Tax Credit Extended And Improved

The federal Adoption Tax Credit has been improved and extended until Dec. 2011. This law was included in the Health Care Reform bill which became law on March 22, 2010. The maximum credit will increase from $12,150 to $13,170 per eligible child. As with the old adoption tax credit, this credit applies to both domestic and international adoptions and to both special needs and non special needs adoptions. This increase is retroactive to January 1, 2010. The biggest improvement of all is that the Adoption Tax Credit is now refundable. Refundable means that if your credit is greater than the taxes you owe, the difference will be refunded to you as part of your tax refund. In the past, if your adoption credit was greater than the amount you owed in taxes you had to carry it over for up to five years in order to take full advantage of the credit. Some families were never able to take full advantage. Now, the IRS will include the difference in your refund check.

An income limit exists for receiving this tax credit. In 2009, the credit starts phasing out if your modified adjusted gross income is $182,180, and is completely phased out at $222,180. The new law states that the income limit will be adjusted for inflation, so it is likely that this limit will increase slightly.

For more information on Affording Adoption and the Adoption Tax Credit click here. Note that none of the IRS forms or fact sheets on that page have been updated to reflect the new Adoption Tax Credit. We still have a ways to go with the Adoption Tax Credit. We will be facing this same battle when the deadline for termination of the credit comes up again in Dec. 2011. We need to make this credit permanent.


More Tax Benefits for Adoption – Many potential adoptive parents are discovering that adopting a child can put a serious strain on family finances. There are two tax benefits to offset the expenses of adopting a child: the adoption tax credit and an exclusion from income of benefits under an employer’s adoption assistance program.


How The Adoption Tax Credit Works For You – Adoptive families can offset their adoption costs by utilizing the Federal Adoption Tax Credit. Under the new Health Care Reform Bill (March 22, 2010) the credit is refundable, which means if your tax credit is greater than the taxes you owe, the difference will be refunded to you as part of your refund.

For example: John and Jane Doe adopt a child in 2010. The family spent a total of $30,000 in adoption-related expenses. John and Jane Doe qualified for the maximum federal adoption tax credit for 2010 of $13,170. After utilizing the credit, John and Jane Doe’s total adoption expenses were reduced to $13,893. John and Jane Doe also qualified for a state adoption tax credit which totaled $3,037. (Please note that adoption tax credit limits vary in each state.)

Doe family adoption expense: $30,000
Federal adoption tax credit: -$13,170
State adoption tax credit: -$3,037
Final total minus available tax credits: $13,893

The income limit on the adoption tax credit is based on modified adjusted gross income (MAGI) and is gradually phased out depending on income.

If your MAGI is:
$182,180 or less
$182,180 to $222,179
$222,180 or more

Then the MAGI limit:
will not affect your credit
will reduce your credit
will eliminate your credit

The maximum adoption credit for 2010 is $13,170 per eligible child.


Adoption tax exclusion
Parents who work for companies with an adoption assistance program also get a tax break. Parents can receive up to $13,170 in reimbursement from their employer for adoption expenses without paying taxes on that benefit. However you can not double-dip. You can’t take a tax credit for adoption expenses reimbursed by your company

  • Qualifying adoption expenses are reasonable and necessary adoption fees. Traveling expenses while away from home and other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.
  • For domestic adoptions, you can claim the credit for adoption-related expenses in the year the adoption is completed. If the adoption is not, you can claim the credit the following year.

For more information on the adoption tax credit and exclusion, visit or contact a local accountant to discuss how these options may help you offset your adoption expenses.