#TaxCreditCollection: The Adoption Tax Credit

February 6, 2017

The process of adopting a child and bringing it into a new home is incredibly special. It can also take a bite out of any parents’ budget as well.

On the bright side, there are some nice IRS tax breaks available to adoptive parents that can ease the financial burden. One such tax break is the Adoption Tax Credit. In Part 3 of our #TaxCreditCollection Series, let’s examine the benefits of this credit and who qualifies to claim it on an income tax return.

What Is The Adoption Tax Credit?

The Adoption Tax Credit is a nonrefundable, dollar-for-dollar federal tax credit that provides government-funded assistance to adoptive parents. In IRS lingo, it’s considered a per-child credit, which means it applies to each youngster you adopt. For example, the credit would double if you adopted two children within the same year.

How Much Is The Adoption Tax Credit Worth?

For tax year 2016, the value of this credit is worth up to a maximum of $13,460 per child. Keep in mind that certain income limitations apply as far as the amount of the credit you are able to claim. These requirements are outlined below.


Parents with baby

The Adoption Tax Credit eases the financial burden for parents who courageously bring an adopted child into their lives.


Who Can Claim The Adoption Tax Credit?

To take advantage of this money-saving tax credit, certain qualified adoption expenses must be met. These include:

  • Fees you pay to an adoption agency
  • Court costs
  • Expenses associated with hiring an attorney for the adoption process
  • Travel expenses, including meals and lodging

Remember that qualified adoption expenses may include those paid before an eligible child is even identified for adoption. Examples of such costs could be for a home study program or other necessary pre-adoption activities. It’s also important to know that qualified adoption expenses do not include expenses that a taxpayer incurs to adopt a child of this taxpayer’s spouse.

Adoption Credit Income Limitations

As with most tax credits, there are income limits on who is eligible to claim them. The income limit on the Adoption Tax Credit is based on your modified adjusted gross income (MAGI). For tax year 2016, the credit begins to phase out for those with a MAGI starting at $201,920 and ending at $241,920.

So, if your MAGI falls under $201,920 for tax year 2016, the value of this credit is not affected. However, if your 2016 MAGI is at least $241,920, you would not qualify for any amount of the credit. If your income falls between these two amounts, you can claim a partial amount of the credit.

What Constitutes A Qualifying Adopted Child?

There are two categories under which a child can fall to be considered a qualifying child for the Adoption Credit:

  1. He or she must be under the age of 18.OR
  2. He or she must be physically or mentally incapable of self-care.

The Adoption Benefits Exclusion

In addition to the Adoption Credit, you may also be able to use the adoption benefits exclusion. Many employers offer an adoption assistance program to their employees who adopt children. In most cases, employees who adopt a child can participate by excluding up to $13,460 from their taxable income for the year in which they adopt a child. This amount is for tax year 2016.

Employers generally report these benefits on an employee’s W-2 form. The same income limit of $201,920 for 2016 is in effect before the credit is gradually phased out for taxpayers who opt for this exclusion.

Remember that both the credit and exclusion can be claimed simultaneously. However, you cannot claim them for the same adoption-related expenses, and any exclusion of expenses must be claimed first prior to claiming any eligible amount of the credit.


Learn more about IRS tax credits and deduction opportunities that can reduce your tax bill by working with the accounting experts at 1-800Accountant. Call 1-800-222-6868 or click over to www.1-800Accountant.

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