Adopting a child is a blessing and a financial challenge for many families. To help ease this burden, the IRS offers several tax benefits for adoption, including the adoption credit. Adoption tax credit is a dollar-for-dollar reduction of federal taxes owed. The credit is phased out when your annual modified adjusted gross income (MAGI) reaches certain levels. MAGI is your gross income minus certain deductions and add-backs.
For the year 2024, the maximum adoption credit for a single qualifying child is $15,950 and offsets qualified adoption expenses (discussed below) up to that amount. The credit is available to taxpayers with modified adjusted gross incomes (MAGIs) below $223,410 in 2022. Families above this limit may still be able to claim the credit, but the amount they can claim is reduced. The credit phases out completely for taxpayers with MAGIs of $263,410 or higher in 2022. Families can claim this credit for both domestic and foreign adoptions. In addition, the credit is a true tax credit and reduces a family’s federal income tax liability dollar for dollar, as opposed to a tax deduction which only reduces the amount of taxable income.
Who is Eligible for Adoption Credit?
You must have eligible children and pay qualified adoption expenses to qualify for the credit. Eligible children include any child you legally adopt who is a U.S. citizen or resident alien under age 17. Qualified expenses are those you incur to adopt a child, including adoption fees, court costs, attorney fees, traveling expenses (including meals and lodging when away from home), and other expenses directly related to the legal adoption of the child.
Qualified adoption expenses are the costs a family pays directly related to adopting an eligible child. These expenses can include a wide range of costs, including attorneys’ fees, court, and travel expenses. They can also include a home study, child care, and education costs. The credit doesn’t include any costs a family receives as reimbursement or payment for adoption-related expenses from their employer or a government agency.
How to Apply for Adoption Credit?
Families who claim the credit are required to file Form 8839, Qualified Adoption Expenses. This form must be submitted in conjunction with the family’s tax return for the year the expenses are incurred. Adoptions of foreign and special needs children are eligible for the credit, but the credit only applies to the amount you actually spend. Generally, you can claim expenses from the calendar year in which you incur them on your return.
If your adoption is not finalized by the end of that year, you must file Form 8839 in the following year and then claim any expenses on that return. You must provide the Social Security number of your adopted child or children. This number is used to verify your identity and determine the dependency level of each child for tax purposes. You must also provide a valid mailing address for the child or children.