Federal Adoption Tax Credit
Since 2003, families who adopted a child with special needs from foster care could claim a federal adoption tax credit even if they had no adoption expenses. Children who receive adoption assistance/subsidy are considered children with special needs. Other adoptive families are also eligible for the credit, but must have (and be able to document, if requested by the IRS) qualified adoption expenses.
The tax credit became refundable for 2010 and 2011. A refundable tax credit is one you get back regardless of what you owe or paid in taxes for the year.
Families who adopted from 2005 to 2009 may be able to benefit from the refundable credit because credits from those years can be carried forward until 2010. (Families who adopted in 2003 and 2004 may be able to take some limited advantage of the credit but will not benefit from refundability. Families who adopted earlier will not benefit from the credit if they did not take it already.)
The amount of the credit is based on the year the adoption finalized:
The credit is claimed one time for each adopted child with special needs.
Below, we explain the basics of the adoption tax credit.
To be eligible for the credit, you must:
- Have adopted a child other than a stepchild — Children who receive a monthly adoption subsidy payment have been determined by the state to have special needs, so these children are eligible for the full tax credit without documenting expenses. Families who adopted children without special needs are also eligible, but need to have (and be able to document, if asked) qualified adoption expenses.
- And be within the income limits — How much of the credit you can claim is based on income. In 2010, families with a federal modified adjusted gross income above $222,520 cannot claim the credit; families with incomes above $182,520 can claim part credit. Adoptions from previous years had different income limits.
You will need to prove the adoption by providing the IRS with a copy of the adoption decree. Families who adopted a child with special needs must also provide a copy of the adoption assistance agreement or a letter from the state determining that the child has special needs.
If You Adopted in 2011
You will claim the credit when you file your 2011 taxes, typically in early 2012. The forms for the 2011 adoption tax credit have not been released yet. Read our fact sheet for more information.
If You Adopted in 2010
To claim the credit, you complete IRS Form 8839 with your IRS Form 1040. On line 5 of 8839, which asks for qualified adoption expenses, enter $13,170 as long as your child receives adoption assistance. Others should enter their qualified adoption expenses. Read our fact sheet for more information.
If You Adopted before 2010
Read our fact sheet for more information.
If you Adopted between 2005 and 2009 and Claimed the Credit the Year You Finalized
If you finalized in 2005 or later, claimed the credit that year, and carried forward the adoption tax credit on each year’s returns, just carry forward the remaining amount of the credit from your 2009 return to 2010. You can claim the full amount remaining as a credit on your 2010 return.
If you claimed the credit the year you finalized, but didn’t carry it forward to subsequent years’ tax forms, you’ll need to amend returns for those years.
If You Adopted in 2008 or 2009 and Didn’t Claim the Credit
You must file for the adoption tax credit in the year you finalized the adoption, so you need to amend your tax return for the year the adoption was finalized and any subsequent years, carrying forward the amount of the adoption tax credit that you are not able to use each year. Any part of the credit not paid before 2010 can be used fully with the 2010 return.
If You Adopted from 2005 to 2007 and Didn’t Claim the Credit
Adoptions finalized from 2005 to 2007 are more complicated because the IRS allows people to amend returns to claim a credit only for the past three tax years. These are now considered closed tax years. The IRS has written, though, that these older credits can be accessed.
If you adopted in 2005, 2006, or 2007, you should amend your returns starting the year you finalized. Because it’s longer than three years ago, you cannot be paid a refund for any of the credit that you would have been due in 2005, 2006, or 2007. You must still complete the 2005, 2006, and/or 2007 return as if you are getting a refund for the credit used, but any credit that could have been refunded in these years will be lost. When you amend your 2008 taxes and forward, you can use any credit due that year. Whatever amount remains after you do your 2009 taxes can be carried over and refunded in 2010. Please note that the IRS may reject your amendment but we encourage you to appeal. A taxpayer advocate may be helpful in the appeal.
If you didn’t file in 2005, 2006, or 2007 and had sufficient tax liability in those years to use up the whole credit, you will not benefit. You need to have some credit carried forward to 2008 to get a payment.
If You Adopted in 2003 and 2004 and Didn’t Claim the Credit
If you finalized an adoption in 2003 or 2004, the issue about amending returns more than three years old applies so you are less likely to benefit. You cannot carry the credit forward to 2010 when the credit becomes refundable.
A family with significant tax liability may use up all of the adoption tax credit in the years before 2008, but they cannot get a refund for these years. Those families who have a moderate tax liability might be able to carry forward some of the credit to 2008 or 2009, when they could get a refund for whatever tax liability they had that year.
Below are links to a number of resources for adoptive families.
- NACAC's fact sheet on adoptions finalized in 2011
- NACAC's fact sheet on adoptions finalized in 2010
- NACAC's fact sheet on adoptions finalized from 2003 to 2009
- IRS Form 8839 for the adoption tax credit and the form to amend previous years' tax returns
- The IRS's frequently asked questions on the adoption tax credit (see question 13 for documentation of special needs)
NACAC's resources focus on adoptions of children with special needs from foster care, but may also be of use to other adoptive families.
North American Council on Adoptable Children (NACAC)
970 Raymond Avenue, Suite 106
St. Paul, MN 55114