Federal Adoption Tax Credit
The legislation to avoid the fiscal cliff (the American Taxpayer Relief Act of 2012, signed into law on January 2) included a provision that made the adoption tax credit permanent. Unfortunately it did not make the adoption credit refundable, so it will only benefit those adoptive families who have federal income tax liability.
For 2014, the maximum adoption credit and exclusion will be $13,190. The credit will begin to phase out for families with modified adjusted gross incomes above $197,880 and the credit will go away completely for those with incomes above around $237,880.
For 2014 and beyond, the credit will remain flat for special needs adoptions, meaning that those who adopt children from the U.S. who receive adoption assistance/adoption subsidy benefits can claim the maximum credit regardless of their expenses. For other adoptions (except for step-parent adoptions), parents can claim the credit based on their qualified adoption expenses.
The credit is not refundable for 2014 or future years, but the credit can be carried forward for up to five additional years. NACAC will continue to advocate for refundability in the future.