NACAC has received numerous questions with regard to adoption assistance payments as a source of income in divorce and child support cases. NACAC strongly warns that Title IV-E Adoption Assistance payments were never intended to become “bargaining chips” between divorcing parents. Title IV-E subsidies are the entitlement of the child, not the parents.
In a similar child support case, the children were in the custody of parent A. Parent B wanted to deduct half of the amount of the children’s subsidy payments from the child support payment. NACAC warns that this request was contrary to the federal intent of P.L. 96-272–The Adoption Assistance and Child Welfare Act of 1980. Subsidy payments are to follow the child and be used to benefit the child, not be counted as income for a parent.
According to federal Policy Interpretation Question (PIQ) 99-01:
Foster and adoptive parents are not recipients of Federal foster care and adoption assistance payments; rather, foster care and adoption assistance payments are made on the child’s behalf to meet his or her needs.
Further, parents of adopted children receiving adoption assistance who claim the children as dependents on their tax returns should be responsible for child support as if the child was born to them.
The IRS makes strong statements about the use of benefits such as adoption subsidies. According to the IRS:
[parents and others are] not to include in income the benefit payments from a public welfare fund. Adoption assistance payments were ruled to be public welfare in 1974. Therefore, Title IV-E payments are income exempt for purposes of taxation. (Chapter 13: Other Income–Income Not Taxed in IRS Publication 17: Your Federal Income Tax (1990).)
For more information on adoption subsidy, please contact the NACAC’s Adoption Subsidy Resource Center at 800-470-6665, 651-644-3036, or firstname.lastname@example.org.