The Adoption Tax Credit: Money Back for Growing Families 

Adoption Tax

Adopting a child is a wonderful way to grow your family, but it can also be an expensive process. Between legal, medical, and court expenses, plus related travel and accommodations, adoption costs in the United States can easily exceed $45,000. Fortunately, the adoption tax credit can help alleviate some of these financial burdens by offering up to $16,810 in credits for adoption-related expenses. In this article, we will explain who qualifies for the adoption credit and how to claim it on your tax return with the assistance of Scout Tax. 

Who Qualifies for the Adoption Tax Credit? 

You are eligible for the Adoption Tax Credit if you pay out-of-pocket expenses to adopt a child under 18 years old or a person who cannot care for themselves due to physical or mental incapacity. However, this credit is not available if you adopt your spouse’s child. Furthermore, when your employer reimburses some of your adoption expenses, you can only claim credit for unreimbursed expenses.

How Much is the Adoption Tax Credit? 

In 2024, the Adoption Tax Credit can provide up to $16,810 per child for eligible adoption expenses. These expenses include court costs, attorney fees, travel expenses (such as food and lodging), and other costs directly associated with the adoption. Although the credit is non-refundable, you can carry forward any unused portion for up to five years if your tax liability is zero.

Your actual costs and modified adjusted gross income (MAGI) determine the amount you can claim. You can claim full credit if your expenses are $16,810 or more. However, for those with a MAGI of $252,150, the credit begins to phase out and is eliminated at $292,150.

Adoption Tax

When to Claim the Adoption Tax Credit 

The tax year in which you claim the credit depends on when you paid your expenses, the year your adoption was finalized, and whether the adoption was domestic or foreign. 

  • For domestic adoptions where the child is already a U.S. citizen, you can claim the credit the following year. You can claim this credit even if you did not finalize the adoption at the time of expense payment.
  • For foreign adoptions, your expenses are allowable as a credit for the year the adoption is finalized. 

Claiming the Adoption Tax Credit for In-Progress or Unsuccessful

If you have not finalized your adoption by the time, you file your taxes, you can still claim the tax credit. You can claim the credit for the costs you paid during the taxable year, even if the adoption was unsuccessful. In subsequent years, you will need to reduce the amount of the adoption credit you claim by the amount you already claimed. For example, if you claimed a $3,000 credit this year for adoption efforts, you could claim the remaining $13,810 next tax year. This rule applies once you finalize your adoption.

Special Needs Adoption and Tax Credits  

The state’s child welfare agency considers children with special needs for adoption purposes as “difficult to place.” The following circumstances must apply:  

  • The child is a U.S. citizen at the start of the adoption process.  
  • The state determines it is unsafe for the child to return to their biological parents’ home.  
  • The state determines that support is necessary for the child to be adopted. This support is provided to the adoptive family. 

If your company provides a qualified adoption support program and you adopt a child declared “difficult-to-place” by the state, you may be eligible for the tax credit. This eligibility persists even if you have not paid for qualifying expenditures. 

Adoption Tax

Employer Reimbursement and Adoption Tax Credit  

It is a straightforward process. If your employer reimburses some of your qualified adoption expenses, you can exclude the reimbursed amount from your taxable income up to $16,810. For instance, if your costs $20,000 and your employer reimburses $5,000, you can exclude the $5,000 from your income and claim the remaining $15,000 as the tax credit. 

How Scout Tax Can Help 

Navigating the complexities of adoption tax credits can be challenging, but Scout Tax is here to help. Our team of experts will guide you through the process, ensuring you claim all eligible expenses and maximize your refund. Visit Scout Tax for more information on how we can assist you with your adoption-related tax matters. For broader financial and business solutions, explore Scout Industries. Let us take care of the details so you can focus on welcoming your new family member. 

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