What Is the Adoption Tax Credit?
The adoption tax credit can be applied to the expenses associated with the adoption of a child. The credit does not apply to the formal adoption of a spouse's child, making a stepparent the legally recognized parent. The goal of the adoption tax credit is to lessen the burden of the financial commitment required to complete the formal adoption process.
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Tax Credit Rules
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While not difficult to qualify for, the adoption tax credit is a lengthy table of rules and guidelines, which must be completed properly in order to receive a refund check, or other tax reduction benefit. U.S. citizens can file for the adoption tax credit when seeking to adopt a child born in the country or abroad.
Form 8839
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Parents will not receive any tax breaks on international adoptions if the process isn't successfully completed. Adoptions, which involve a natural born U.S. child, qualify for the tax credit even if the planned formalization process falls apart. Federal Tax form 8839 is the title of the form that must be completed in order to receive an adoption related tax credit.
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Tax Formula
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The tax formula provides up to $12,150 per child. This deduction is required to be applied for during the same calendar year. The 2009 tax credit figure increased approximately $2,000 from 2006, and may fluctuate annually. The adoption process is often long and tedious, and the federal government allows portions of the tax credit to be applied for over a multiple-year credit system. The credit also can be applied to reimbursement payments related to an Employer Adoption Benefit Assistance program.
Typical Expenses
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Adoption tax credit guidelines cover funds spent on payments required during the adoption process, such as attorney fees, medical screenings and background checks. An accountant or tax attorney can guide parents to better understand what types of expenses qualify for the adoption tax credit. Typical travel expenses, court appearances associated costs, passports, lodging and food if extensive travel is required during the adoption process, and adoption agency fees.
State Refunds
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Some states allow tax credits be issued for specific adoption expenses that are deemed non-recurring. The guidelines vary by state, and require a separate state refund form be filed in addition to the federal adoption tax credit paperwork.
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