Adoption Tax Credit Update

While we don’t have all the answers, this post will update you with clearer information regarding the American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013. Within this Act there is a provision that made the adoption tax credit permanent. This was and is wonderful news and proves that advocacy efforts really do work. The one negative however is that the provision did not make the adoption credit refundable, so it will only benefit those adoptive families who have federal income tax liability.

Exact numbers of the maximum credit has not yet been shared but based on early report it appears that for adoptions occurring in 2013, the maximum adoption credit and exclusion will be slightly higher than the 2012 maximum of $12,650. The credit will begin to phase out for families with modified adjusted gross incomes above a certain level, around $190,000+ and the credit will go away completely for those with incomes around $230,000+.

For 2013 and beyond, the credit will remain the same adoptions of children with special needs. Also if children adopted in the United States also receive adoption subsidy payments, adoptive parents can still claim the maximum credit regardless of their expenses. For other non-kinship adoptions, adoptive parents can claim the credit based on their qualified adoption expenses.

Adoption STAR is hoping that with continued advocacy the adoption tax credit will become refundable for 2012 and into the future. Even though it isn’t refundable, we are thrilled that there is an adoption tax credit in place. For those who adopted in 2012 we encourage you to submit Form 8839 with your 2012 taxes even if you do not have tax liability. Although you will not receive an adoption credit refund with your 2012 taxes, the credit can be carried forward for up to 5 years and perhaps you might benefit later if either your tax situation changes or if the credit is deemed refundable in the future.

We will continue to keep you posted and we urge you to continue your advocacy efforts toward making the adoption tax credit refundable.

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