Six Facts from the IRS about the Expanded Adoption Credit

The tax code has long contained generous credits to help defray the costs of adopting a child. Recently, those provisions became more generous by allowing taxpayers to claim the credit even when it exceeds their total tax liability. This means not only can the credit take you down to $0 Federal taxes owed, but you can actually have a negative tax liability, meaning the government is paying you instead of the other way around. Below are six items the IRS wants taxpayers to know about the new rules for the adoption credit.

It’s also important to point out that many states also provide adoption credits. Make sure you check the rules for your state to see if you might qualify for additional tax benefits. (The state-level credits are so rare that usually tax software won’t even point them out to you…you’ve got to find the forms and complete them on your own. Your adoption agency may be able to steer you in the right direction, or you can consult a professional.) And one final note is that generally adoption expenses related to legally adopting your spouse’s child as your own generally are not eligible for the credit. However, if you’re in a registered domestic partnership or same-sex marriage, you don’t have to worry about this rule. The IRS doesn’t consider your spouse to be your “spouse”, so you’re free to take the adoption credit if you’ve legally adopted your spouse’s child as your own.

IRS Summertime Tax Tip 2011-10, July 27, 2011

If you are adopting a child in 2011, the Internal Revenue Service encourages you to familiarize yourself with the adoption tax credit. The Affordable Care Act increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.

Here are six things to know about this valuable tax credit:

  1. The adoption tax credit, which is as much as $13,170, offsets qualified adoption expenses making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt a child in 2010 or 2011 may qualify if you adopted or attempted to adopt a child and paid qualified expenses relating to the adoption.

  2. Taxpayers with modified adjusted gross income of more than $182,520 in 2010 may not qualify for the full amount and it phases out completely at $222,520. The IRS may make inflation adjustments for 2011 to this phase-out amount as well as to the maximum credit amount.

  3. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.

  4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

  5. To claim the credit, you must file a paper tax return and Form 8839, Qualified Adoption Expenses, and you must attach documents supporting the adoption. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children. You can still use IRS Free File to prepare your return, but it must be printed and mailed to the IRS, along with all required documentation. Failure to include required documents will delay your refund.

  6. 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 is 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.

For more information see the Adoption Benefits FAQ page available at or the instructions to IRS Form 8839, Qualified Adoption Expenses, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).


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