Adoption-Related Tax Benefit Q&As

If you adopted a child, or if you paid expenses to adopt a child even if the adoption is not yet final, you may receive a dollar-for-dollar tax credit for your expenses.

If your employer reimbursed you for some or all of your expenses, you also may be able to exclude the benefit you received from your taxable income.

What is the Adoption Credit and how much can it be worth?

The Adoption Credit is a tax benefit that may reimburse you for the expenses you pay to adopt a child. It is based on 100% of your qualified expenses. For 2013, you may receive a credit of up to $12,970 per child.

The credit is based on expenses, including:

Adoption fees
Travel to arrange for the adoption and pick up your child, including meals and lodging for the time you are away from home
Court costs and attorney fees
Re-adoption expenses to adopt a foreign child

You cannot take an Adoption Credit for expenses paid by someone else, such as a government program or your employer.

What if my employer reimbursed me for adoption expenses?

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 $12,970 of your adoption expenses as a tax-free benefit. This tax-free benefit is called an “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).

What makes an adopted child eligible for the Adoption Credit or the exclusion?

A child must be under 18 years old or physically or mentally unable to care for himself or herself.

Additionally, the child cannot be your spouse's child or part of a surrogate parenting arrangement. Finally, the adoption cannot violate state law.

Are there different rules for adopting children with special needs?

The maximum Adoption Credit is the same for all children, with or without special needs. However, you may receive the full credit of $12,970 for adopting a special needs child, even if your qualified expenses were less than $12,970.

If the adoption process starts in one year and is finalized in another year, when do I claim the credit or exclusion?

You generally take the Adoption Credit in the year the adoption becomes final. 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 in the year you receive the benefits, except if you are adopting a foreign child. In that case, you cannot exclude the benefits until the year the adoption is final.

Can I take a credit even if I don't owe income tax?

For 2013, the Adoption Credit is nonrefundable. This means it can only be applied to your income tax liability. If you don't owe income tax before the credit for 2013, you can carry any excess credit forward for up to five years.

Does this credit phase out at higher income levels?

Both the Adoption Credit and the exclusion begin to be phased out when your adjusted gross income reaches $194,580. They are completely phased out when your adjusted gross income exceeds $234,580.

What tax form do I file?

You claim the Adoption Credit or the exclusion on Form 8839, Qualified Adoption Expenses.