When you’re starting or adding to your family, every bit of savings helps. The cost of adoption and raising a child are good motivation for becoming as financially savvy.

Have you heard about the Federal Adoption Tax Credit (ATC)? Have you wondered how it works? If you are considering adoption, or are in the process of adoption, you may have heard conflicting or confusing information about the ATC. In addition, rules for the credit have changed frequently.

Who is eligible for the ATC?
The ATC is available to adoptive parents who have adopted a child:

  • Who is not their spouse’s child
  • Through foster care adoptions, private domestic adoptions and international adoptions
What if I’m unsure if I’m eligible?
The IRS has an interactive, online tool to help you make your determination. Visit: Am I Eligible to Claim a Credit for Adopting a Child or to Exclude Employer-Provided Adoption Benefits from My Employer?
What are the tax benefits?
Tax benefits for adoption include 1) a tax credit for qualified adoption expenses paid to adopt an eligible child and 2) an exclusion from income for employer-provided adoption assistance.
How much is the tax credit worth?
The maximum dollar amount in 2016 was $13,460 per child. The credit is nonrefundable, meaning it’s limited to your tax liability for the year. Credits in excess of your tax liability can be carried forward for up to five years.
What is considered a qualified adoption expense?
For the credit and the exclusion, an expense may be a qualified adoption expense even if the expense is paid before an eligible child has been identified.

If, for example, you pay for a home study at the beginning of an adoption effort, you can treat the fees as qualified adoption expenses.

Qualified adoption expenses include:

  • Reasonable and necessary adoption fees
  • Court costs and attorney fees
  • Traveling expenses (including amounts spent for meals and lodging while away from home)
  • Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child
What is the definition of an eligible child?
An eligible child is an individual who is under the age of 18 or is physically or mentally incapable of self-care.
For what tax year can you claim the credit?
The answer depends on when the expenses are paid, if yours a domestic adoption or a foreign adoption, and if/when the adoption was finalized. For the timing rules and definitions of domestic and foreign adoption, review the IRS Topic Number: 607 – Adoption Credit and Adoption Assistance Programs.
How do you claim the adoption credit or exclusion?
Use IRS Form 8839 to claim your credit or exclusion, and file it along with your individual income tax return.

Remember, this information is not tax advice, so speak with a tax professional if you have questions or need more information. Also visit the IRS website and review the IRS Topic Number: 607 – Adoption Credit and Adoption Assistance Programs.


Author: Destiny Adoption Services

Destiny Adoption Services is proud to support and guide birth parents and adoptive families on the journey of adoption. We’re a state licensed nonprofit adoption agency with four decades of adoption experience, and our professional team of experts includes moms, adoptive moms and birth mothers who provide compassion combined with trusted resources and skills.