Updated March 2017
Can I receive the credit if I adopted a child from another country?
Yes, once the adoption is legally finalized, either in your child’s home country or in the US, you can claim your qualified adoption expenses, up to the maximum.
Is the adoption tax credit for all adoptions or just special needs? Can I receive the credit if I adopted a healthy child? What kinds of adoptions benefit from the tax credit?
The adoption tax credit is for all adoptions (international, domestic private, and public foster care) other than stepparent adoptions. See below for more information about how special needs adoptions are different.
What if I adopt my partner’s child but we are not married?
If you are not married, it is not considered a stepparent adoption so you can claim the adoption tax credit if you have qualified adoption expenses.
What is the maximum amount of the credit for 2017? At what income level does the credit begin to phase out?
For 2017 adoptions (claimed in early 2018), the maximum adoption credit and exclusion is $13,570 per child. The credit will begin to phase out for families with modified adjusted gross incomes above $203,540 and the credit will go away completely for those with incomes around $243,540.
Since the credit is per child, the maximum you claim depends on the number of children you adopt. If you adopt two children in 2017, your maximum is $13,570 x 2 or $27,140. If you adopt four children, the maximum is $13,570 x 4 or $54,280. For purposes of the tax credit, there is no limit on the number of children you can adopt.
What is the maximum amount of the credit for 2016? At what income level does the credit begin to phase out?
For 2016 adoptions (claimed in early 2017), the maximum adoption credit and exclusion is $13,460 per child. The credit will begin to phase out for families with modified adjusted gross incomes above $201,920 and the credit will go away completely for those with incomes around $241,920.
What is tax liability?
Your federal income tax liability is the amount of federal income tax that you are responsible for for the year. If you did your taxes manually, it’s the amount you look up in the tax table based on your adjusted gross income (for some families it also includes the alternative minimum tax and Affordable Care Act credit repayment). You can get a refund and still have tax liability; a refund simply means you paid in more than you owe. It’s not really this simple, but the general idea is that if your employer withholds $5,000 in federal income tax during the year and you get a refund of $3,000, your tax liability was the $2,000 that the government keeps in federal income taxes.
Is the adoption tax credit refundable for 2017 or future years?
No. The credit was only refundable for tax years 2010 and 2011. A refundable credit is one that a person can benefit from regardless of their tax liability (see above).
What does it mean that the credit is not refundable?
A non-refundable credit is one in which taxpayers receive (or benefit from) a refund of federal income taxes only up to the amount of taxes they would have paid. In one year, taxpayers can use as much of the adoption tax credit as the full amount of their federal income tax liability, which is the amount on line 47 of the 2016 Form 1040 less certain other credits (such as the Child and Dependent Care Expenses).
Even those who normally get a refund may still have tax liability; with the adoption tax credit the taxpayer could get a larger refund.
Families who have lower or moderate incomes may have no federal tax liability and will not benefit from a non-refundable credit. We still encourage families who don’t think they have tax liability to file for the credit (Form 8839) as long as they would otherwise file taxes, in case their tax liability changes in future years (see more below under “carry forward”).
Here’s a very simplified example: A family has $5,000 in federal income taxes withheld from their paychecks during the year. When they do their taxes, they look at the tax tables and based on their adjusted gross income, their federal income taxes are $1,000 (this is their tax liability). If there were no adoption credit, they would be due a refund of $4,000—the $5,000 they paid less the $1,000 they are responsible for paying. The family had qualified adoption expenses of $8,000. Because of the adoption credit, they would receive an additional $1,000 refund for that tax year (reducing their tax liability to zero), meaning that they get the full $5,000 that was withheld back rather than just the $4,000 they would have gotten without the non-refundable credit.
They then carry the remaining $7,000 ($8,000 in expenses minus the $1,000 they used) forward to future years and receive additional refunds depending on their tax liability in future years. (See more on the carry forward below.)
Is the adoption tax credit a deduction?
No, the adoption tax credit is not a deduction. The credit is a dollar for dollar reduction in the amount of federal tax liability owed for the year.
How much of the credit can a parent claim?
(Please note: claim is not the same as use — you can claim a credit and never be able to use it, depending on your tax situation.)
Parents who adopted a child who has been determined to be special needs by the state or county child welfare agency (see next question for special needs definition) can claim the maximum credit regardless of whether they have qualified adoption expenses at all.
For other adoptions (except stepparent adoptions, which are not eligible for the credit), parents can claim the credit for qualified adoption expenses up to the maximum. So if a family has $5,000 in expenses for a private, non-special needs adoption, they can claim only that $5,000 not the maximum. Families who have expenses above the maximum can only claim the maximum. So if a family has expenses of $30,000 for a 2017 adoption of two children, they will be able to claim only $27,140 ($13,570 per child), as long as their income is below the phase-out limits listed above.
In all cases, how much a parent will actually benefit in a given year depends on their tax liability (see above).
What constitutes a special needs adoption?
Special needs really means hard to place, rather than that the child has a disability or medical condition. Basically the child must receive adoption subsidy/assistance (including reimbursement of nonrecurring adoption expenses or Medicaid through the adoption assistance program). The IRS instructions for Form 8839 say, “A child is a child with special needs if all three of the following statements are true.
- The child was a citizen or resident of the United States or its possessions at the time the adoption effort began (US child).
- A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents’ home.
- The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. [emphasis added by NACAC] Factors used by states to make this determination include:
- The child’s ethnic background and age,
- Whether the child is a member of a minority or sibling group, and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.”
Again, many children who have disabilities or medical conditions do not meet the IRS definition of special needs. These parents will need to have and document qualified adoption expenses to claim the credit.
If my child doesn’t receive a monthly adoption assistance benefit is my child considered special needs?
You do not need to receive a monthly payment to qualify as special needs for the purposes of the adoption tax credit as long as you receive either reimbursement of non-recurring adoption expenses or Medicaid through the adoption assistance program. The child must receive benefits through the adoption assistance program and have an adoption assistance agreement.
If you do not receive adoption assistance benefits, it is not considered a special needs adoption. Many children who have disabilities and other special needs are not considered special needs adoptions for the purposes of the tax credit.
Can the credit be carried forward if I don’t have enough tax liability the first year I claim it?
Yes, taxpayers have a total of six years to use the credit—the year they first are eligible to claim it and the next five years.
We encourage adoptive families who file taxes to include a Form 8839 to claim the adoption tax credit even if they do not believe they will be able to use any of the credit in the first year. Families may have tax liability in future years and claiming the credit would save them from having to go back and amend taxes once they were able to benefit.
Does a parent who adopted a child who the state has determined to have special needs still have to have tax liability?
Yes, the only difference for special needs adoptions is that parents can claim the maximum credit regardless of whether they had any adoption expenses at all. The credit is still non-refundable for special needs adoptions.
I already claimed the credit for my child’s adoption and received the full refund. Do I get to claim it again?
Not unless you adopted again. The credit is a one-time credit per child. If you adopt again, you are definitely eligible to claim another adoption tax credit for that child (or children).
If you never filed for the credit, but adopted in 2012 or more recently, you may still be able to benefit depending on your personal tax situation. See below for more information.
If it is an international or special needs adoption (without qualified adoption expenses), you claim the credit in the tax year in which you finalize the adoption. For special needs adoptions without expenses, you claim the maximum amount of the credit in the year the adoption is finalized. For domestic, non-special needs adoptions, you must claim any expenses either the year you finalize or, for non-finalized adoptions, the year after you paid the expenses. So if you finalized an adoption in 2016, but had expenses from 2013 to 2016, you can claim the 2013 expenses with your year 2014 tax return (typically filed in early 2015), the 2014 expenses with your 2015 tax return, and the 2015 and 2016 expenses with your 2016 tax return (filed in early 2017). The maximum credit will be based on the year of finalization.
You cannot claim the credit for a non-finalized international adoption.
If you had a domestic adoption that is not yet finalized, you can claim expenses but you have to wait until the tax year after you incurred them (2015 expenses are claimed with the 2016 tax return filed in early 2017).
For failed US special needs adoptions, you can only claim any expenses you had (not the maximum credit), and again you would have to wait until the tax year after you had the expenses.
(See below for more about failed adoptions.)
I got a placement in 2016 but haven’t finalized yet (or finalized in early 2017). When can I claim the adoption tax credit?
For private domestic adoptions, expenses incurred in 2015 for a non-finalized adoption can be claimed with 2016 taxes. Expenses from 2016 cannot be claimed until 2017 taxes are filed. If the adoption finalizes in 2017, parents can claim 2016 and 2017 expenses with their 2017 taxes filed early next year.
How do I claim the adoption tax credit?
You need to fill out a Form 8839 for the year of the adoption and include it with your Form 1040. If you use software or a tax preparer, they can complete it for you.
Can I take the credit every year?
No, it is a one-time credit per child. If you adopted in 2012 or later, you claim the credit in the year of finalization (or prior to finalization of domestic adoption with qualified adoption expenses). You then use the credit that year and carry forward what’s remaining to later years until it is all used up or a total of six years have passed.
The one exception is if you have expenses for a non-finalized US adoption, you claim those the year after you had the expenses. Then if you finalize the next year and have not already reached the maximum allowed, you can claim the remainder of the credit in that subsequent year.
Is there a limit to the number of credits I can claim if I adopted multiple children?
No. You can claim the adoption tax credit for any number of children you adopt (other than a step-child). If you adopt more than three children, you will need a second form 8839 to list each of the children.
What documentation is required?
No documentation is required for 2016 tax year (since the credit is not refundable), however we suggest that you keep copies of the documentation with copies of your tax returns in case of an audit.
If you are claiming the full credit for a child who receives adoption assistance, the documentation that you want to keep in your file is a copy of the adoption assistance agreement, which is the state’s determination of special needs.
What are qualified adoption expenses?
The IRS writes:
“Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.
Qualified adoption expenses include:
- Adoption fees,
- Attorney fees,
- Court costs,
- Travel expenses (including meals and lodging) while away from home, and
- Re-adoption expenses relating to the adoption of a foreign child.
Qualified adoption expenses do not include expenses:
- For which you received funds under any state, local, or federal program,
- That violate state or federal law,
- For carrying out a surrogate parenting arrangement,
- For the adoption of your spouse’s child,
- Paid or reimbursed by your employer or any other person or organization, or
- Allowed as a credit or deduction under any other provision of federal income tax law.”
Can I claim the credit for a failed adoption?
Yes if it is a US adoption and you had qualified adoption expenses. It is treated as a non-finalized adoption, and you must wait one year after you incur the expenses. So, if you had expenses for an adoption in 2015 but the adoption has failed, you claim them with your 2016 taxes, typically filed in early 2017.
I had a failed US adoption but later adopted successfully. Can I claim the credit twice?
No. The instructions for Form 8839 state:
“Attempted Adoptions of U.S. Children
If you made more than one attempt to adopt one eligible U.S. child, combine the amounts you spent and complete only the “Child 1” line. Do not report the additional attempt(s) on the “Child 2” or “Child 3” line. Complete the “Child 2” or “Child 3” lines only if you adopted or tried to adopt two or three eligible children.
You planned to adopt one U.S. child. You had one unsuccessful attempt to adopt a child and later successfully adopted a different child. Complete only the “Child 1” line because you made more than one attempt to adopt one eligible child.”
I had a failed international adoption. Can I claim the adoption tax credit?
No. To claim any credit for an international adoption, the adoption must be finalized.
I had a failed adoption of a child with special needs. Can I claim the maximum credit without expenses?
No. If you had expenses related to the adoption process, you could claim them in the tax year after you incurred the expenses like any other domestic adoption.
If I’m claiming the credit for a non-finalized or failed US adoption, what do I use for the child’s identifying number?
If you cannot give complete information about an eligible child you tried to adopt the year before because the adoption was either unsuccessful or was not final by the end of the year, complete the entries that you can on line 1. Enter “See Attached Statement” in the columns for which you do not have the information. Then attach a statement to your return, providing the name and address of any agency or agent (such as an attorney) that assisted in the attempted adoption. Be sure to write your name and social security number on the statement.
What if I adopted a child aged 17 who turned 18 before I filed for the credit?
You can still claim the credit as long as the child was under age 18 at the time of finalization.
Can I claim the adoption tax credit for an adoption finalized prior to 2012?
It’s too late to benefit from the adoption tax credit for any adoptions finalized before 2012.
The law also allows adoptive parents whose employers offer an approved adoption assistance program to exclude any reimbursed expenses from their taxable income. Parents cannot claim the expenses for the exclusion and the credit. For example, a family spends $17,000 on their adoption, and the employer reimburses $10,000 through an approved adoption assistance program. The family can exclude the $10,000 from their taxable income, and claim only the remaining $7,000 for the adoption credit.
Those who adopt children with special needs can use the maximum amount of the exclusion ($13,460 for 2016) regardless of any expenses or reimbursement as long as their employer offers a qualified adoption assistance program.
Please review the instructions for Form 8839 for more information on the exclusion.