Adoption Tax Credit Updated for 2010

So how would it work if an adoption is in the process and expenses were incurred in 2009 and not finalized until 2010. If they incurred $5,000 in 2009 and $5,000 in 2010, how much of the credit would then be able to take for their 2010 return?

See my article on the adoption tax credit which covers the timing rules.

What if you adopt a US citizen baby in 2010 but don’t finalize until 2011 do you still qualify for the tax credit since you can take it in the year it happened? And would you still be able to take it over the 5 years? Also if you adopt twins are you able to double the amount to $24k instead of the $12k?

We adopted twins – both adoptions were finalized in 2009. Because they were twins, all of the eligible adoption expenses (incurred over 2008 and 2009) were “lumped” together – in other words, one home study, one attorney bill, one hotel bill, etc.

The cost cannot be broken down specifically for each child. So, when filling out the tax form, how do I list the expenses? The forms seem to want the expenses listed separately for each child.

DDL, why don’t you just divide the total expenses by two and report half for each child you adopted? You can always attach a statement to your return explaining how you arrived at the qualifying expense amounts.

Would expenses for embryo adoption be eligible for the adoption tax credit? There are medical expenses as well as the traditional home study & legal fees.

How does the tax credit apply to ministers? My husband is a minister and pays SECA, but not FICA. I thought I heard he doesn’t qualify but am having a hard time finding out as this would be a huge incentive for us to adopt in 2010. Thanks!

Just like with more tax credits, the Adoption credit offsets the income tax. It does not offset or reduce the self-employment tax nor FICA-payroll taxes.

So how does it work, actually? We are adopting twins through the foster system. It isn’t final yet, so will be 2010. They are special needs and both have disabilities. Will we be eligible for anything? How do they figure the amounts? The state takes care of all expenses, but I thought I read you don’t have to have expenses with special needs. Thank you!

Hello, my wife and I began the adoption process in 2008 and paid expenses toward the adoption to our agency beginning that year. We got our son from the hospital in July of 2009 and our finalization is February of 2010. We have paid expenses in the years of 2008 and the rest of the expenses this year when we got our son. My question is when we can start claiming the expenses on our taxes? For the 2008 expenses, can we claim them now on our 2009 taxes that we file in a few months or do we have to wait to file our 2010 taxes since the adoption is finalized then?

Adopted 2 children from foster care. Do we need to claim adoption allowance recieved each month from the state.

Hi, I am a bit confused. Can you file the adoption credit if you had No out of pocket expenses? My kids are special needs and receive adoption assistance.

Of course speak to your tax expert first, but generally speaking a child adopted from foster care is considered “special needs”. If you get a monthly adoption/foster subsidy, even after the adoption is final, he/she is “special needs” even without a handicapped or other disability.

Does the tax credit apply to embryo adoption ?

My wife and I have adopted two children. One in 2002 and the other in 2004. Due to the fact that I am a pastor and most of the taxes I pay annually are SECA taxes we have not been able to take advantage of the tax credit. Make sure you do all of your homework before counting on this credit. Even run a scenario through a tax program for a past year to see how it will be advantageous to you.

@ 11 Pam – adoption assistance/subsidy is not taxable income.

@ 12 Tan – if the child is considered special needs, and the only time the state makes that determination is when they are determining whether or not a child qualifies for adoption assistance, then you can file for the full credit regardless of expenses. On form 8839 you will have to indicate that the child is special needs by checking line 1, column (d). On line 5, you put in the full amount of the credit which was $12,150 per child in 2009.

If you are using a tax preparer and they question it, have them pull the instructions and read the instructions for line 5. If they still don’t believe you, escalate to a supervisor or find another preparer that isn’t lazy.

Does anyone know if the tax credit applies if your child is state determined spoecial needs but does not receive any money because the birth parents did not sign a permanent surrender within a certain time frame???

I read recently that the new changes for 2010 make the adoption benefit a refund and not a credit. Which would make it possible for people with no tax liability to receive the benefit. That would be beneficial to ministers who pay mainly seca taxes. Can anyone confirm or have more information about this. I contacted the IRS and they do not have that information yet.

My question is similar to the last one: I just heard at an adoption seminar that for 2010 the adoption tax credit is $13,170 and that you will get that back even if your tax liability is below that (if you have at least $13,170 in adoption expenses). We typically only pay about $8k in taxes so I thought that’s all we would get credited. Which is correct?

I too was told that it was a refund and not a tax credit by our adoption specialist but our account said that she didn’t think so!! Has anyone confirmed this to be true?

The adoption tax credit will be a refundable credit for 2010 and 2011 – meaning that the adoption credit will function much like a prepayment of tax. It can offset your federal income tax, any additions to tax, and can result in a refund check from the IRS greater than the amount you actually prepaid through withholding or estimated payments. For more details, see my updated article about the Adoption Tax Credit.

I just have a question. I am adopting two special needs children. A brother and a sister. It will be final next month or no later than September. How does the tax credit work for us? Do we get all of this back or what. We have been given so many different answers! We are confused.

Please refer to my updated article on the Adoption Tax Credit. Basically this tax credit was revised in the middle of 2010, making the credit refundable for the years 2010 and 2011.

We were granted permanent Legal Guardianship of a child through the foster care system in MAy 2010. Would this situation be eligible for the tax credit as well?

We started a foreign adoption in January and will complete it before the end of the year. Our adoption expenses exceed the $13,170 mark by a good bit. Will we be able to claim the excess expenses in 2010 on our 2011 return or are the expenses above $13,170 on us?

I adopted a child in 2008 and have been claiming the adoption credit since 09 i still have a balance to carry over does that mean that I will get the rest of the balance added to my refund

for those who have or are adopting from foster care…see the link. Best info I can find. Since we traditionally have not much or no out of pocket, my cpa had no idea how to apply it. This spells it out.

Which link? We adopted 4 special needs children in November, through Dss, and aren’t sure what applies to us.

Kim, please see my updated page regarding the adoption credit.

We adopted a little boy through the county. We were foster parents for him first and then we adopted. It was finalized this June (yippee). My questions are:

1. Since he is special needs do we need to file the stipend that we receive monthly as taxable income.

2. Are we eligible for the “2010 Adoption Refund” although we did not put out any money for the adoption because it was a “county” adoption?

Thanks so much!

I adopted a sibling group of 3 in 2009. Since they are a sibling group they are automatically considered special needs by the state. We do receive an adoption subsidy on them and it is not taxable income. Our accountant claimed the $12,000+ per child on our last year return. It can be carried over for 5 years. With our income we will never get all of our $36,000+ tax credits within the 5 years allowed. If we had adopted in 2010 we would be getting a check for $36,000+ even though we paid no expenses out of pocket. They stress out of pocket as a requirement but when you read the details is not required for special needs children and you can claim the max benefit amount. I hope this helps someone. I have been on the phone with the accountant today trying to determine if we could claim the other 4 years this year but we can’t.

My understanding is you can claim the carry forward as a rebate. I just got off of the phone with the IRS and that is what the lady told me. I have one that was adopted in 2008 that we still have $10k in carry forward. I was told I would receive it as a refund in addition to the two that were finalized in 2010.

File an amended return for 2009 and carry forward the unused credit to year 2010. On your 2010 return, because the adoption credit is now a refundable credit, you will be refunded the balance of the credit, offset by any taxes you owe.

JB,

Your comment really helps us to get through all of the legal mumble jumble! You are correct, a sibling group of 3 or more qualifies as “special needs” – something that for some reason no one wants you to know. We have been on this adoptions roller coaster for 3 years. A child care credit of some type is needs to pay child-care related expenses. We are adopting 4 children in a sibling group, and we are considering a fifth child, if the agency is unable to find another adoptive family. We need help with child care and the agency does not want to help us. It is amazing that the education budget is cut, the child care budget is cut, and the adoption assistance budget is cut, but we continue to hear about children who need foster / adoptive homes. It is easy for poor people to adopt children. In a sad way adoption increases their income, because they can qualify for public assistance programs (child care, food stamps, housing, etc). It is also easy for wealthy people to adopt. They usually adopt one or two children to “complete” their family or as companions for their own children. So you see, it’s the middle class that makes the biggest sacrifice in opening our hearts and homes to children who have such tremendous needs. And yet, no one seems to care.

Please NOTE: These comments are not meant to be offensive or insensitive to the needs of any group. Just by virtue of us coming together to discuss the issues surrounding adoption shows that we all care about what happens to children who need care, and that we are willing to provide it. On behalf of children everywhere, please know that we are truly grateful.

Thanks again!

Hi. I am preparing taxes for a lady. I’ve been doing them for a couple of years. I just learned that all of her kids are adopted. The youngest one was adopted in 2006. She has never claimed the adoption credit. Is she eligible to claim the credit on the year’s tax return for the one adopted in 2006? He is a special needs child.

My understanding is you have to ammend all the returns so you have the exact carryover into this year. But I was told you can only ammend back to 3 years. I myself lost out on this big refund too. We adopted Nov 27 2004 so we are just a few months short of the refund. Giving us nothing and we never had taxes high enough like most to even benefit from any of the credit we got. Its a no win situation in some cases.

I heard that the adoption credit payment will not be paid at the same time as my regular refund, that the amount for the credit will be paid in June 2011.. is this true ?

Hi Tonya! Good news…confirmed mine is being direct deposited on Friday…the where is my refund does not reflect this but I have confirmed it with a IRS representative…so hang in there…it will happen! I posted today in regard to my experience…I must say I am ecstatic…I was concerned that the adoption credits would not be given…I had only heard of two receiving them..Hope this helps give you some hope!

I am so upset by this. We adopted three special needs children in 2004. So we miss getting back our carryover by a year. This is not very fair to people like us.

We started the adoption and process paid all the fees. We decided to go a different path because it was going on two years waiting for a child. However, we put out over $10,000 to get in the program. Are we still eligible to some of the adoption credit since the adoption never happened? The money was spent on the adoption process, so I would think so. If I ask three people…I get three different answers. Please help. It doesn’t seem fair that we are still without a child and out of pocket over $10,000.

Has anyone received just part of their income tax and the adoption part is being withheld for review? This has happened to us and it is very frustrating.

This happened to us too. A portion of our refund was deposited last Friday, but the remainder is “under review”. WMR says they are sending a letter, and it will request more info, however we sent in the decree and an adoption subsidy agreement showing our child was special needs. I called, because I felt like we sent everything in that was required, and was told they may send a letter, and they may not. He said to be patient and we will get the refund. We have always claimed her as special needs and did not have to amend prior returns. It is very frustrating.

yes,this happend to us and it is very frustrating!

My wife and I just had our taxes done last night. We have had 3 failed adoptions in the past 5 years. We have filed our taxes using our expenses for the previous years and have recieved refunds of the amouts we had paid. We have $3000 left in expenses to claim on our 2010 taxes is what I thought, but after taking our taxes to an H&R Block specialist, they are saying that we will be getting $26,888 on a return. I am having a hard time swallowing this. This is more than we paid out on all of the losses combined. Is this true?!?! Could some one please shed some light on this for me. Thanks

@Tamara I got part of my tax income back and the adoption part I haven’t. However, the IRS has not sent me any information why I didn’t get the adoption tax credit back yet. I sent in all of the documents required now I’m just waiting and I’m also very frustrated too as I was expecting that money!

Has anyone received their tax return with the aoption credit? I had one friend get back her “normal” refund six weeks ago and they sent her a letter stating they needed more information…I did not receive anything at all back yet..am I to assume this is just a random audit and since nothing has changed on mine I should expect a full refund next week? If I do I will be sure to post it…just wondering if anyone else has received it to help ease the anxiousness! Thank you

I have received a portion (normal refund) with a letter stating that it is in review and that if everything is there I should receive it in 45 days.

Im curious to no if anyone who received that letter received thier ATC yet if so how long after?

I recieved the same letter, Informing us of the 45 day review. They requested no additional info. and this has put us in a financial bind because we have booked tickets to a far away place so our adopted child can meet Grandparents for the first time, we were counting on the refund for the hotel costs in the trip and for food etc durring travel, we arent going as far as they’re house but meeting them part way. Now it seems we arent going to have the spending money to travel and Our tickets (plane ) are non refundable. If the Gov. takes the entire 45 days and then releases the remainder of our refund to us I.E. Adoption Credit that is being withheld, then we will get it 4 days prior to our flight but if at that point they need more info or time , we are Out of Luck. (stinks, because our adopted child more than needs the $ he is special needs adoption)

Well, now I am beginning to get really down…My date has been changed from March 22nd to May 3rd…I did not receive a partial refund like so many have nor a request for additional information..The IRS is telling me that they had a software glitch so everything has to be put in manually due to the system kicking them out… Come May 3rd will I once again be pushed out or told I’m not getting it? We were really depending on this….

Just so you know, the 45 days does not include the additional 30 days they have to review after they have received any additional paperwork – so it can take 75 days. I filed in Feb, received partial refund, letter for additional paperwork received. They received my paperwork 4/4 and it had not been reviewed as of the end of May. I was told they now have 30 days to review again before any release of funds. My 45 days should have ended May 6 – now I am looking into June.

we have adopted four special needs children. I am a little mift that they put a law into place and don’t want to back it up. They keep asking for more and more proof on every little thing. They are in special needs school, getting therapy, two are autistic, seriously, they don’t want to refund the money, they just wanted to look good!
I have gotten none of my money, three weeks moved my date another week, now it says they want more information and look for a letter.
I am under the impression they just want you to give up on the credit and then they won’t have to give it to you. How about they take my four kids home for a week and then let me know.

We attempted to adopt a child, but the birth mom changed her mind. We expended money, i.e. attorney expenses. Can we still apply for the adoption credit even if the adoption did not go through?

Expenses for a domestic adoptions can be taken on your tax return for the year following the year in which expenses were incurred, if the adoption is finalized. For an adoption that doesn’t go through, as in your circumstance, the expenses can be added to your next adoption attempt and a tax credit generated when that adoption is finalized. The IRS mentions this briefly in the attempted adoptions section of the Instructions for Form 8839.

I just wanted to update, I sent my tax return in Feb 1, 2011 and didnt get my review letter until March 6th. They stated that I would also know something with in 45 days. Well three weeks later and not a word.

I also filed a special needs adoption credit. That was February 22, 2011. I just got a letter from the IRS stating that my taxes are in review and I will be receiving word back within 45 days. Sucks!!!! I sent in the adoption decree and the States letter stating thr adoption as a special needs child. What more does the IRS want. Just give people what they deserve!!!!!!!

The following is directly from the IRS.gov site. We are waiting review as well. 45 days from 4-10 according to our letter. They told us not to send anything in yet, which to me means that they haven’t even started looking at it!

‘Were you contacted by the IRS about your adoption credit claim?

The IRS is committed to processing adoption credit claims quickly, but it also must safeguard against improper claims by ensuring the standards for this important credit are met.

If your return is selected for review, please keep in mind that it’s necessary for the IRS to ensure the legal criteria are met before the credit can be paid. If you are owed a refund beyond the adoption credit, you will still receive that part of your refund while the review is being conducted.

You will be notified by the IRS if your return is selected for review. Once the initial review of your return is complete, you will receive a subsequent notice explaining the steps you need to take such as providing certain documentation to resolve the issue.

If you receive a notice about your filed tax return, follow these simple tips:

Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry. Review the correspondence and compare it with the information on your return.

Mail or fax the requested documents and information, along with the bottom tear-off portion of the notice, to the IRS address or fax number shown on the notice. Allow at least six weeks for a response.

Taxpayers should call the phone number on the notices they receive from the IRS if they have questions.
The IRS appreciates the assistance of those providing the documentation needed to protect this important credit to ensure only those who qualify receive it.’

I received the part of my refund that has nothing to do with the adoption credit…I also received a revised status as the above comment. My original date was to be March 3rd..status was changed end of March and partial was received. Has anyone yet received their adoption credit? I was told someone received their credit for two adoptions…not sure if this is true because hearsay is hearsay… Let me know please!!

We are the same, we had a carryover from 2 foster care special needs adoptions. 1 from 2008, and 1 from 2009. We were to recieve the remainder, was refunded only the portion without the adoption tax credit. It went to review, a letter sent to us asked to send the SAME forms in that were already submitted initially. (the decree….etc) The IRS explained it was because this is new tax code this year, and large amounts of the 8839 forms are going to review, the examiners are in different geogrqaphical locations, did not have access to the forms sent the first time?? (that is how the IRS person explained it. Our friend DID recieve her adoption credit return! Also a special needs fostercare adoption from 2010. They were given a partial credit….then a letter stating the rest was in review. They DID NOT have to “resend” the same supporting documents. (we did) and a week or 2 ago they ended up getting the full refund back! We are in that waiting period still. Our return initially was to be given back to us on April 12th. It is now May 1st and we are still waiting for the remainder. We so counted on it too. It is making our budget a little uncomfortable right now as we counted on our return. It was just the remaining carry forward!

My husband adopted my two children. Do we qualify for the adoption credit? My tax preparer says yes, (have had him for 11 yrs. now), and filed it, and all ducks in a row…every court paper I had was mailed with it, but now I have heard yes’s and no’s about spouses adopting receiving the credit. Our status said before May 10th, and now it is saying not until May 17th do to processing delays. Help! what could be the reson? very confused about this whole thing

Chris-we had an original status for March and then it was revised to april due to processing delays. Now it says that we will receive a letter requesting additional documentation. We received the letter which said there was no need to send anything additional. Everyone seems to be going through the same scenario…I have only heart of one person receiving it and that was through hearsay. Our children were all adopted through the state and our special needs. All of the appropriate paperwork was sent in. The IRS signed for our return on 1/22/11..it is now 4/22/11. I wouldn’t think at this time there is anything wrong with your return since everyone else is going through the same thing. I would still love to hear if someone else has received their adoption credit yet

I have a friend who recieved their total amount back. They only had a partial refund first (as we did) then got a letter saying it was in review(also as we did) ….they did NOT get the letter saying resend the documents (we did)….and almost 2 weeks ago they recieved their ENTIRE refund. We are still waiting for our remainder. (sigh)

If I adopted a special needs child in the adoption was finalized in December of 2002 am I qualified.?

Michelle G., Thanks for asking your question. Unfortunately, tax credits and refunds can be sent out by the IRS only if claimed within three years of the original filing deadline. This is part of the statute of limitations on various IRS actions that can be taken. Refunds and tax credits from the year 2002 expired on April 15, 2006.

Hi everyone! I just wanted to put some of you at ease…I have been posting on here since March in regard to the refundable adoption credit. Like most of you I had a date set for my return…receipt should of been several months ago. I also received the letter stating that my return was under review. I had sent all adoption decree’s and documentation of special needs (sibling groups/all adoptions through foster care are considered special needs in the state of KY) with my return….GOOD news…I have confirmed today that my refund will be deposited on Friday. Of course it will be minus my “regular” portion that I received about a month ago. I hope this helps ease some of your concern…I know that this had been a rocky road but will have a happy ending! The IRS representative was so kind and really did her job…my thanks goes out to her! Using patience and kindess helps get things moving! She actually thanked me for being so understanding…this has been quite overwhelming for the representatives (who are paid to do a job and follow guidelines)..apparently the aggrivation that we as taxpayers have been going through has been ten fold for them… My recommendation…if calling the number they give you…be courteous and patience…they will come through for you and your families! I know as adoptive parents we have so many additional expenses and this is life changing in regard to stablity of our households! Good Luck to All!