Tax Breaks for People With an Adopted Disabled Child
Adopting a child is a major undertaking that requires time, patience, love and money. It also provides parents with lifelong rewards. Adopting a disabled child or a child with special needs can be even more challenging and costly but also rewarding. The IRS recognizes the financial burden involved in adopting disabled children and helps offset the costs of adoption by offering various tax credits and deductions.
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Adoption Tax Credit
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The IRS offers the Adoption Tax Credit to help offset non-recurring adoption costs to all eligible taxpayers. U.S. taxpayers looking to adopt a disabled child from the United States or abroad may be eligible to receive this credit. In 2011 the IRS raised the tax credit amount to $13,360 per child per adoption attempt. The Adoptive Tax Credit was also updated in 2010 and made refundable through the year 2011, making taxpayers eligible to claim part or all of the tax credit amount even if they did not file a tax return or the tax return they filed was less than the full amount of the tax credit.
Adoption Credit Qualifications
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Adoptive parents of a disabled child must meet several criteria to claim the Adoption Tax Credit. In 2010 taxpaying households earning more than $222,520 were not eligible for the tax credit. Only children under the age of 18 or physically unable to care for themselves qualify for the tax credit. In addition only children that are U.S. citizens or residents qualify for the tax credit. According to IRS Topic 607, children that the state has determined cannot or should not be returned to their home and will most likely not be adopted without assistance from the state qualify as special needs children. This qualification entitles adoptive parents to claim the entire tax credit as qualifying expenses even if the adoption costs are less. Parents adopting an eligible disabled child from a foreign country may not claim this credit until the adoption is finalized.
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Military Adoption Reimbursement
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Active-duty military members are also eligible for an additional adoption tax credit. Military personnel with adopted disabled or special needs children may receive a $2,000 per child reimbursement payment per year. This reimbursement is capped at $5,000 per year for each taxpayer, regardless of how many adopted children the taxpayer cares for.
Child Tax Credit
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Many parents of adopted or disabled children can claim the Child Tax Credit on their tax returns. In 2011 tax filers could claim $1,000 per child per year as a tax credit to be applied against their total taxable income. Parents filing a joint tax return earning more than $110,000 in combined income are eligible for only a partial credit, as the credit is gradually phased out as income levels surpass this amount.
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