Federal Adoption Credit
An individual will be allowed a credit against income tax (and alternative minimum tax) for qualified adoption expenses. The credit is available for each child adopted and for expenses incurred in any failed adoption. It is generally available in a relative adoption, but not in a stepparent adoption.

For tax year 2009, the maximum tax credit for non-special needs adoptions is the amount of qualified adoption expenses up to $12,150. The credit is the same for a special needs child, but the full credit may be taken without regard to the actual amount of the taxpayer’s qualified adoption expenses. This credit begins to phase out for taxpayers with adjusted gross income in excess of $182,180. It is completely phased out for taxpayers with a modified adjusted gross income of $222,180.

For tax year 2010, As part of the new Health Care Reform bill, the federal adoption tax credit has been increased to $13, 170, and extended through tax year 2011. More importantly, the credit is now “refundable,” which means that even families that owe zero taxes can receive the full tax credit in the form of a tax refund, to help with adoption-related expenses. In non-special needs adoptions, taxpayers still need to support the credit with qualified adoption expenses. For a special needs adoption, the full credit is available for each adopted child regardless of actual expenses.

Note that the IRS does not allow the tax credit in step-parent adoptions, when a person adopts his or her spouse’s child. However, the IRS has allowed the tax credit in the case of unmarried same-sex couples where one partner adopts the other partner’s child. It’s likely then that the tax credit also would be available in second-parent adoptions involving unmarried heterosexual couples.

Federal Adoption Exclusion
The amounts of the applicable exclusion for adoption assistance benefits provided by an employer are the same as those for the adoption credit.

Forms and Resources

• Form 8839 for tax year 2008
• Instructions for Form 8839 for tax year 2008
• Tax Benefits for Adoption, Publication 968

  (Note: This is a 2004 publication that the IRS has withdrawn. Some of the specific information in the publication is outdated, and some interpretations of the law may not be warranted or correct. Nevertheless, the publication can be helpful for a general understanding of the federal tax credit/exclusion law.)

• Form W-7A, Application for Taxpayer ID Number for Pending US Adoptions

  (Note: This provides a temporary tax ID number for your new child prior to the finalized adoption and to the issuance of a permanent social security number for the child.)

Additional information can be obtained from the IRS website:
www.irs.gov/taxtopics/tc607
www.irs.gov/publications

State Tax Credit/Exclusion
In addition to the federal adoption tax credit, your state may offer a tax credit or exclusion. Check with your accountant or attorney to determine whether a state tax credit or exclusion may be available to you.

Important Disclaimer
The information in this page is not intended and should not be relied upon as legal advice. As always, in order to determine whether a tax credit or exclusion is available in any specific situation, you should consult your accountant, attorney, or tax advisor.