Tax Credit Overview

One of the most significant sources of funding available for adoption is a federal income tax credit and the ability to exclude any employer-paid adoption benefits from your income for calculating income tax.

Federal Income Tax Credits
In 2002, the “Hope for Children Act” doubled the federal income tax credit for adoption expenses from $5,000 to $10,000. For the 2008 tax year, the total amount of credit available is $11, 650. The tax credit is a credit on your federal income tax for adoption related expenses. The web resources listed above contain the details and limitations of the credit. You should consult with your tax advisor to understand how this credit applies to your situation

Exclusion of Adoption Benefits
In addition to the tax credit, any adoption benefits paid to you by your employer do not count against your income.  This exclusion also has a ceiling of the yearly maximum, and you cannot count the same expense against the tax credit and an employer reimbursed benefit.  When you take the credit and exclusion, the rules on when you can take the credit and exclusion vary depending on whether you are adopting domestically or internationally.  In either case, the credit applies for each child successfully adopted.

Phase-Out of Benefits
There is a phase-out of this tax benefit. If your modified adjusted gross income is between $174,730 and $214,730, the amount of tax credit or exclusion is reduced.  If your modified adjusted gross income is greater than $214,730, then the benefit is reduced to $0.

This overview does not substitute for specific tax and/or legal advice.  Please consult your tax, financial, or legal advisor for detailed information specific to your needs.  Please refer to the IRS website for up to date amounts and conditions.  The values listed above are for the 2008 tax year.