You may be able to get some or all of your adoption expenses back in the form of a tax credit, which may be worth up to $14,300 per child (in 2020).
Adoption fees are not the only expenses you can be reimbursed for with the adoption credit. If you travel to arrange for the adoption and pick up your child, you can deduct transportation expenses, meals, and lodging for the time you are away from home. You can also deduct court costs and attorney fees.
If your employer reimburses you for adoption expenses, you may not have to pay tax on the value of the reimbursement. Your employer can pay up to $14,300 of your adoption expenses as a tax-free benefit if you qualify for the exclusion.
If your employer reimburses you for some of your expenses, and you pay other expenses yourself, you may be able to claim both the credit and the exclusion for the same adoption (although not for the same expenses).
However, for a U.S. adoption, if the adoption is not final, you can take the credit in the year following the year you have the expenses. For a foreign adoption, you must wait until the year the adoption is final to take the credit.
You can exclude employer-provided adoption benefits from your taxable income, except if you are adopting a foreign child. In that case, you cannot exclude the benefits until the year the adoption is final.
This means that it can only be applied to your income tax liability. If you don't owe income tax before the credit for 2020, you can carry any unused credit forward for up to five years.
Both the adoption credit and exclusion begin to be phased out when your adjusted gross income reaches $214,520, and are completely phased out when your adjusted gross income exceeds $254,520.
When you go through the step-by-step interview in TaxAct, the program asks about the child you are adopting, how much credit or excluded benefit you have claimed for this child in prior years, and other information necessary to complete Form 8839.