Individuals qualify for the adoption tax credit they adopted a child and paid out-of-pocket expenses relating to the adoption. The amount of the tax credit you qualify for is directly related to how much money you spent on adoption-related expenses. If you adopt a special needs child, however, you are entitled to claim the full amount of the adoption credit, even if your out-of-pocket expenses are less than the tax credit amount.
The adoption credit is calculated on Form 8839 Qualified Adoption Expenses (PDF).
Adoption Tax Credit Amounts
2013: $12,970, non-refundable
2012: $12,650, non-refundable
2011: $13,360, refundable
2010: $13,170, refundable
2009: $12,150, non-refundable
2008: $11,650, non-refundable
2007: $11,390, non-refundable
2006: $10,960, non-refundable
Adoption Tax Credit Phase-out Ranges
2013: $194,580 - $234,580The IRS provides a worksheet for figuring your modified adjusted gross income for the adoption credit in the Instructions for Form 8839. Any income excluded from tax using the Foreign Earned Income Exclusion must be added back for the purposes of determining the phase-out range for the adoption credit.
2012: $189,710 - $229,710
2011: $185,210 - $225,210
2010: $182,520 - $222,520
2009: $182,180 - $222,180
2008: $174,730 - $214,730
2007: $170,820 - $210,820
2006: $164,410 - $204,410
Adoption Credit for 2010 and 2011The adoption credit was scheduled to sunset at the end of 2010. However, the massive health care reform legislation extended and revised the adoption tax credit. The health care legislation enhanced the adoption tax credit in three ways. First, it bumped the maximum adoption credit from $12,150 to $13,170. Second, it extended this increased tax credit amount to the year 2011. Third, it made the adoption credit refundable. The Tax Relief Act extended increased dollar amounts for an additional year, through 2012.
Adoption Tax Credit Eligibility RequirementsTo be eligible for the adoption credit, you must:
- Adopt an eligible child, and
- Pay qualified adoption expenses out of your own pocket.
- any child age 17 or younger, or
- a child of any age who is a US citizen or resident alien and who is physically or mentally incapable of caring for himself or herself.
Qualified Adoption Expenses are calculated by:
- Adding up all the expenses related to the adoption,
- Subtracting any amounts reimbursed or paid for by your employer, government agency, or other organization.
Taxpayers who adopt a special needs child can claim the full amount of the adoption credit without regard to the actual expenses paid in the year the adoption becomes final.
Eligible expenses must be "directly related" to the adoption of an eligible child. This may include adoption fees, legal fees, and court costs. Expenses for a failed adoption might qualify for the credit if followed by a successful adoption, but the two adoption efforts would be considered as one adoption and subject to the dollar limit per eligible child. The editors of JK Lasser's Your Income Tax advise:
"Do not include expenses paid or reimbursed by your employer or any other person or organization. You may not claim a credit for the costs of a surrogate parenting arrangement or for adopting your spouse's child." (page 485)
When to Claim the Adoption CreditWhat year you can claim the adoption credit depends on when the adoption was finalized and whether the adopted child is a US citizen, resident alien, or foreign national.
If the child is a US citizen or resident alien, then you take the adoption credit in the following order:
- for expenses paid before the adoption is final, you take the adoption credit in the year after your expenses were paid,
- for expenses paid in the same year that the adoption is final, you take the adoption credit in the same year, and
- for expenses paid in the year after the adoption is final, you take the adoption credit in the year the expenses were paid.
If the child is a foreign national, then you take the adoption credit only in the year when the adoption becomes final. Any expenses paid in the year after the adoption is finalized, you can take a credit for those expenses in the year that you paid them.
If your adopted child does not yet have a Social Security Number, you must apply for an Adoption Tax ID Number (ATIN) in order for you to begin claiming your adopted child as a dependent. The IRS provides comprehensive information on the Adoption Taxpayer Identification Number.
Carrying Forward the Adoption CreditAny adoption credit in the year 2012 or later that is in excess of your federal tax liability can be carried forward to the subsequent tax year. Excess adoption credits can be carried-forward for up to five years is used up on a first-in, first-out basis.
Adoption Tax Credit Resources
- Internal Revenue Code Section 23 (Legal Information Institute, Cornell Law School)
- Adoption Credit (Tax Topic 607 from the IRS)
- Revenue Procedure 2010-40 for the year 2011 adoption credit and phase-out amounts.
- Revenue Procedure 2011-52 for the year 2012 adoption credit and phase-out amounts.
- Revenue Procedure 2013-15 for the year 2013 adoption credit and phase-out amounts.
Last revised 1/13/2013.