By Josh Kroll
At Families Rising, we’ve been advocating for the Federal Adoption Tax Credit since it was first introduced in 1996. Why? Because this tax credit can make a real difference for the families of the more than 50,000 children adopted from foster care each year. But many of these families (and even their tax preparers) find the rules confusing – that’s where we come in. Let’s break it down!
Defining “special needs” for the adoption tax credit
Families who adopt a child from foster care who’s considered “special needs” are eligible for the full credit – $16,810 in 2024.
The tricky part is understanding what “special needs” actually means for this credit because it doesn’t necessarily mean a disability is present. In fact, the presence of a disability does not mean the child is automatically considered special needs. Basically, any child who receives adoption support or assistance (which is around 90% of adoptions from foster care) is determined to have special needs for the purposes of the credit.
Children adopted privately or internationally, regardless of disability, typically don’t meet the requirements for the “special needs” designation. But don’t worry! Caregivers can still claim up to the full amount of the credit for qualifying adoption expenses so long as they haven’t been reimbursed by anyone else.
When to claim the credit
Adoptions from foster care and international adoptions must be filed in the year the adoption is finalized.
Private domestic adoptions may claim expenses the year after they’re paid, even if the adoption isn’t finalized or there hasn’t been a match with an expectant parent.
The adoption tax credit is nonrefundable, meaning it can only reduce your tax bill – it won’t give you a refund beyond what you owe. Families with an adjusted gross income below $30,000 often find it tough to use the credit, but if you can only use part of it in a year, you have six years to carry it forward. Anything left after six years will expire.
One last tip
If your employer offers adoption assistance, you might qualify to exclude that from your tax return. It’s a perk worth looking into! Say your family spent $17,000 on adoption expenses, and $10,000 was reimbursed by your employer. You can exclude the $10,000 from your taxable income and claim the remaining $7,000 for the federal tax credit. And if your adoption is designated special needs, you can exclude the full amount no matter the employer-provided assistance.
Need more help navigating all this?
Families Rising has been supporting families through all types of adoption since 2004. We have extensive information on our web site about filing the adoption tax credit, including a free recorded webinar led by Families Rising’s Josh Kroll.
Families can contact Josh Kroll directly at 651-644-3036 x115 or [email protected] for any questions or assistance they need.