Saturday, October 6, 2012

Adoption Tax Credit

Have you adopted in the past?
Are you in the process?
Are you thinking about adoption in the future?

Then, welcome to your new job as an advocate!! HA!

I first heard about the situation with the adoption tax credit by doing some digging online. We are hoping to start our adoption process in the near future and I was wanting to know more details about what the tax credit really looks like for a family like mine.

So, I'm by no means and expert, but after listening to a webinar online this week...


I was completely clueless about how the tax credit actually worked, but Save the Adoption Tax Credit is an amazing resource. They were the ones who put on a webinar where they explained the situation more clearly.

This history was so helpful and came from here.

History of the Adoption Tax Credit:

  • Since its introduction in 1997, the adoption tax credit has historically been a non-partisan issue widely supported by Congress, and available in some form every year.
  • The adoption tax credit is available for eligible families that adopt through foster care, intercountry adoption, and private domestic adoption.
  • Over time, the rules of the credit have changed. The requirements for determining families’ eligibility have changed, those adopting children with special needs became eligible to claim the credit without expenses, and the amount of the credit has increased. Before 2010, the credit could be carried forward over multiple years, and in 2010 and 2011 the credit was made refundable, allowing families to receive the full benefit during a single tax year regardless of taxes due that year.
  • Although many bills have been introduced to make the adoption tax credit permanent, they have never passed. Instead, it has always been extended or amended as a part of other pieces of legislation, including the Small Business Job Protection Act of 1996, the Economic Growth and Tax Relief Reconciliation Act in 2001, the Health Care and Education Reconciliation Act in 2010, and the Tax Relief Act at the end of 2010.
  • In 2012, the credit amount decreased to $12,650. It is no longer refundable, eliminating the availability of the credit to some lower- or moderate-income families without tax liability. The 2012 credit may be carried forward for five additional years, applying to each year’s liability until the full credit amount is used or time expires.
  • The current adoption tax credit will sunset December 31, 2012. If Congress does not take action, the credit will revert back to $6,000 and apply only to the limited number of special needs adoptions that have adoption expenses. No credit will remain for most adoptions.
So, basically on January 01, 2013 the existing tax credit will expire and there will no longer be a tax credit available for adopting families (unless you are adopting a special needs child from the U.S.). 

And honestly, the tax credit as it exists today is not very helpful for most families! As a non-refundable tax credit....a typical middle to lower income family who adopts will only receive about $6,000 of the available almost $13,000. 

This was the best example from the webinar.


A family has $5,000 in federal income taxes withheld from their paychecks during the year. When they do their taxes, the amount from the tax table shows their federal income tax is $1,000. Because they have no other taxes (like self-employment) or credits, they receive a refund of $4,000. If they adopted with expenses of $8,000, and the credit was not refundable, they would receive a maximum of $1,000 in adoption tax credit for the year (meaning that they have $5,000 instead of $4,000 refunded to them). Since the credit can be carried forward up to five more years, in the end they would get $6,000 over a six-year period.

If the credit was fully refundable, they would receive a refund of $12,000 in one year — their $4,000 regular refund plus the full $8,000 in their adoption expenses.

What can you do to help?

You can start calling, emailing, and writing to your state senators and representatives. There are two specific bills that we are asking them to sponsor and help pass. If these bills are will make the tax credit inclusive, permanent, refundable, and flat for special needs adoptions. 

We can totally do this!! Go here to learn how to be and advocate for the adoption tax credit.

I would highly recommend going here too for the webinar slides and recording. It was so helpful in putting into clear language the confusion of tax credit law for me!

So, go look up for state information and make a difference!!

Go be an advocate and change a families life forever!

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