Adoption Tax Credit – Understanding the Single-Largest Tax Credit Available To Families Today


Every family deserves the opportunity to adopt a loving child into their home. But while the lifelong benefits of adoption for everyone involved is priceless, the process can be expensive. Fortunately, the IRS offers significant relief for families making the commitment to adopt. If you’re adopting a child, have recently adopted a child, or are thinking of adopting a child, here is what you need to know.

The Adoption Tax Credit provides families up to a maximum of $14,080 tax relief for 2019, per child. The Adoption Tax Credit was made permanent by The American Taxpayer Relief Act of 2012 and can be used to offset any paid qualified adoption expenses relating to an adoption, even if the adoption does not become final.

What is a Qualified Expense?

Qualified expenses include attorney or agency fees, court costs, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to the legal adoption. It does not include costs of health care or other expenses relating to the parenting of an adopted child. It also does not include expenses incurred by a registered domestic partner who lives in a state that allows same-sex second parent or co-parent to adopt his or her partner’s child. It is important to keep all receipts and records.

Who Can Claim the Tax Credit?

The credit is subject to income limitations, meaning that not every taxpayer qualifies.

For 2019, the credit decreases for taxpayers with a modified adjusted gross income (MAGI) over $211,160. Taxpayers with a MAGI of more than $251,160 may not claim the credit.

When Can the Credit be Claimed?

For a domestic adoption, qualified expenses paid any year before an adoption becomes final are claimed the year after payment. This is true even if the adoption is never finalized, so you can claim tax credits on a yearly basis throughout the adoption process. Once an adoption becomes final, all qualified expenses are claimed during the year of payment. For foreign adoptions, the adoption must become final for expenses to be qualified and all expenses are claimed during the year of payment.

Credit or Deduction?

A tax deduction is nice, a tax credit is even better. This makes the Adoption Credit an even more attractive tax break for families. A deduction lowers your amount of taxable income. For example, a $5,000 deduction reduces your $100,000 income to $95,000. But if you are still in the 25% tax bracket (married filing jointly), your $5,000 deduction only reduces your tax bill by $1,250 ($5,000 x 25%). A tax credit provides a dollar-for-dollar reduction in the amount of tax you owe. If you owe $10,000 in tax, regardless of your tax bracket, your final bill will be $5,000 after applying a $5,000 credit.

Can the Credit Trigger a Tax Refund?

No, the credit is non-refundable. This means that if the credit is more than your tax due, you will not get a refund of the difference. However, the credit can reduce your tax to zero and you may carry any unused credit forward up to five tax years.

What is the Income Exclusion?

Any income received from an employer under an adoption assistance program can be excluded from your taxable income. This is called the income exclusion benefit. It is possible to claim both the tax credit and an income exclusion in a given year. However, you cannot claim the income exclusion and tax credit for the same expense. For example, if an employer reimburses you for certain expenses and that benefit is excluded from your income, those same expenses cannot also be qualified for the credit.

How Do You File?

To file for the Adoption Tax Credit, use IRS Form 8839.

Access this form at:

Are You Prepared Financially?

This answer is up to you. There are many things to consider. Taxes aside, think about how adoption might affect your budgeting, cash flow, insurance needs, and college savings, among other financial goals. Your financial life will surely become more complex. Preparing financially will help you feel secure and ready to focus on the newest member of your family.

Windgate does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation.

Data here is obtained from what are considered reliable sources as of 3/31/2019; however, its accuracy, completeness, or reliability cannot be guaranteed.

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