Abstract: Two tax benefits may be available to offset the expenses
of adopting a child. In 2023, adoptive parents may be able to claim a credit
against their federal tax for up to $15,950 of “qualified adoption expenses”
for each child. That’s a dollar-for-dollar reduction of tax. And there may be tax
relief for some employees under programs offered by employers.
Adopting a child? Bring
home a tax break too
Two tax benefits are available to offset the
expenses of adopting a child. In 2023, adoptive parents may be able to claim a
credit against their federal tax for up to $15,950 of “qualified adoption
expenses” for each child. That's a dollar-for-dollar reduction of tax.
Also in 2023, adoptive parents may be able to
exclude from gross income up to $15,950 of qualified expenses paid by an
employer under an adoption assistance program. Both the credit and the
exclusion are phased out if the parents’ income exceeds certain limits.
Parents can claim both a credit and an
exclusion for expenses of adopting a child. But they can’t claim both a credit
and an exclusion for the same expenses.
Qualified
expenses
Only “qualified adoption expenses” are
eligible for the adoption credit or exclusion. These are the reasonable and
necessary adoption fees, court costs, attorney fees, travel expenses (including
meals and lodging), and other expenses directly related to the legal adoption
of an “eligible child.”
Not included in qualified expenses are those
connected with the adoption of a child of a spouse, a surrogate parenting
arrangement, a violation of state or federal law, or the use of funds received
from a government program. Expenses reimbursed by an employer don’t qualify for
the credit, but as explained above, benefits provided by an employer under an adoption
assistance program may qualify for the exclusion. If an adoption attempt is
unsuccessful, the related expenses may still qualify, if the child is a U.S.
citizen or resident.
Taxpayers who adopt a special needs child can also
take a credit or exclusion for $15,950. This is true whether or not they had
that amount in actual expenses.
Eligible child
To be eligible, a child must be under age 18
when the expense is paid, though partial deductions may be available if a child
turns 18 during the year. Adoptees who are incapable of self-care may qualify regardless
of age.
A special needs child is one that a state
determines can’t, or shouldn’t, be returned to his or her parent’s home, and
due to certain factors, won’t be adoptable without assistance provided to the
adoptive family. Only a child who is a citizen or U.S. resident can be included
in this category.
Get the full benefit
Contact us with questions. We can help ensure
you get the full benefit of the tax savings available to adoptive parents.
©
2023