Great News: Adoption Tax Credit Made Permanent!

UPDATE FROM THE VOICE FOR ADOPTION: Please note that since VFA’s original notice on the status of the credit (this January) we have learned that for 2013 the amount will be a maximum of $12,970. We also believe the credit does not have a carry forward limitation, like in prior years (previously restricted to 5 years forward). We are unsure if 2012 is limited to 5 years of credit carry forward and won’t know this information until IRS releases clarification later this year.

For a list of frequently asked questions, click here.

Last night, Congress passed the American Taxpayer Relief Act of 2012 (H.R. 8). The bill included a “permanent” extension of the adoption tax credit, unfortunately without refundability. The credit was permanently extended along with a number of other tax provisions from the 2001 EGTRRA bill (Economic Growth and Tax Relief Reconciliation Act of 2001). The bill made the adoption tax credit permanent, extending the credit as it was in 2001. However, the credit will not be refundable.

Here is a summary from the Finance Committee:
Permanently extend the increased adoption tax credit and the adoption assistance programs exclusion. Taxpayers that adopt children can receive a tax credit for qualified adoption expenses. A taxpayer may also exclude from income adoption expenses paid by an employer. The EGTRRA increased the credit from $5,000 to $10,000, and provided a $10,000 income exclusion for employer-assistance programs. The Patient Protection and Affordable Care Act of 2010 extended these benefits to 2011 and made the credit refundable. The bill extends for taxable years beginning after December 31, 2012, the increased adoption credit amount and the exclusion for employer-assistance programs as enacted in EGTRRA.

This is a major victory for adoption, and thanks to everyone who worked to make this happen!  Again, grateful thanks to those whose efforts brought this to a successful conclusion on behalf of children needing families.  Happy New Year!

Click here for updated information from the Adoption Tax Credit Working Group.

To learn more about the Adoption Tax Credit and the American Taxpayer Relief Act, click here.


7 Replies to “Great News: Adoption Tax Credit Made Permanent!”

  1. Im in the process of adopting a special needs child,do I have to wait until it’s final before I can claim this credit?

  2. Hi Robert. Yes, families may only claim the credit once the adoption is finalized. Here is what the IRS says on this matter: “For a foreign adoption, however, the credit and exclusion are allowable only if the adoption is finalized. Qualified adoption expenses paid before and during the year of finality of a foreign adoption are allowable for the year of finality. Once an adoption becomes final, expenses paid during or after the year of finality are allowable for the year of payment, whether the adoption is foreign or domestic.”

    Regarding international adoption of children with special needs, the IRS states: “The adoption credit’s definition of children with special needs is narrower than the definitions of special needs for other purposes. For purposes of the adoption credit, foreign children are not considered special needs. Additionally, many U.S. children who have disabilities are not considered special needs for the purposes of the adoption credit. Generally, special needs adoptions are the adoptions of children whom the state’s child welfare agency considers difficult to place for adoption, and most foster care adoptions are special needs adoptions, but few other adoptions are special needs adoptions.”

    Be sure to consult with a licensed tax preparer for more information specific to your situation. Click here to view the IRS fact sheet on the Adoption Tax Credit:

  3. @J. West: Non-refundable only means that they won’t send you additional money above your tax liability. So if your tax liability for the year is under your adoption credit, you’re still going to get all your taxes back and then carry-over some credit to the next year. I’m not a tax pro, but a refundable credit is one that pays you beyond your liability. It’s confusing, but the point is for those of us doing a domestic adoption, yes, this still means thousands of dollars back to us.

  4. Robin,
    Are ANY foreign children still eligible (e.g., those with serious medical needs)? If they are, how would families get a determination from their state child welfare agency, when the adoption was international with a private placing agency and no state custody involvement in the case? I would welcome any insights, thoughts or suggestions you may have about this scenario. Thank you! I love working with Holt…

    Nora Searing
    Lutheran Community Services Northwest
    Spokane, WA

  5. Hi Nora,

    I’m not an expert on this topic, but here’s what it says in the FAQs on the “Save The Adoption Tax Credit” site: “Just because a child is disabled does not mean the child is special needs under the tax credit. No child adopted internationally is considered special needs for the adoption tax credit. Not even every child adopted from foster care is considered special needs (about 10 percent of children adopted from care do not receive adoption assistance support). Those who do not have an adoption assistance agreement are not special needs.”

    I would say that’s pretty definitive, but best to ask a tax attorney for more clarification. To view the FAQs, click here:

    Thank you for supporting Holt and take care!

  6. I have just got a letter from the IRS telling me that the credit is nolonger refundable, but I don’t understand. Should I go to my employer and ask them to stop taking out my federal taxes because I have a tax credit of 25,000. and I only make 50k? I just don’t know what to do with this. Can anyone help with this? This is a few of the sentences
    ” You may request a small dallar case aappeal for a disallowed claim that is not more than 25,000. or prepare a formal protest for a disallowed calim over 25,000.”

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