If you adopt a child, the Internal Revenue Service allows you to receive a credit for the expenses associated with the adoption. This credit is not processed in the same way that other federal credits are, so you must be aware of certain procedures before claiming it. If you fail to follow the rules for filing your claim, any refund due as a result of the credit will be delayed.
Refundable Credit
The federal adoption credit is a refundable credit as of 2010. Refundable credits can generate a tax refund for you, even if you do not owe tax. Prior to 2010, the federal adoption credit was nonrefundable, which means you could only use the credit to reduce your tax to zero. The provisions under the prior adoption credit structure allowed taxpayers to carry forward any adoption credit amount that could not be used. If you adopted a child and have unused carry forward credits, you may be able to receive the balance as a refundable credit. The maximum credit available is $13,170 per adopted child.
Qualified Expenses
The amount of adoption credit you receive is based on the amount of eligible expenses you incur for adopting your child. You can include your expenses for items such as attorney fees, court costs and traveling costs that are necessary for the adoption process. You may not receive credit for expenses you incur for stepchild adoptions, surrogacy programs or for expenses reimbursed to you by your employer.
Claiming the Credit
To claim the adoption credit, you must complete IRS Form 8839 (Qualified Adoption Expenses) and attach the form to your 1040 income tax return (see Resources) . You'll provide on the form information regarding the child you adopted and the expenses you paid for the adoption. In addition, your adjusted gross income must be less than $182,520 to receive full credit. Your credit will be reduced if your adjusted gross income is more than $182,520 and completely phased out if it is more than $222,520.
Support Documents
When you claim the adoption expense credit on your tax return, you must attach documents to support your claim. Examples of documents you must attach include a final order of adoption, a placement agreement, proof of expenses and entry visas if the child was adopted from a foreign country. If your adopted child has received a special needs diagnosis, you must attach a determination of the status. You must provide the documents for each child if you adopted more than one. Because you must attach these documents, you may not file your income tax return electronically. If you are due a refund as a result of the adoption credit, expect to wait six to eight weeks to receive your refund.
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