Federal Adoption Tax Credit

There are two tax benefits to offset the expenses of adopting a child: the adoption tax credit and an exclusion from income of benefits under an employer's adoption assistance program. According to the IRS, the maximum adoption credit has increased to $12,150 for tax year 2009. The maximum exclusion from income for benefits under your employer’s adoption assistance program has increased to $12,150 as well. These amounts are phased out if your modified AGI is between $182,180 and $222,180. You cannot claim the credit or exclusion if your modified AGI is $222,180 or more. In addition, many states provide reimbursement of a certain amount of non-recurring adoption expenses. Be sure to check with your state tax office to learn more about it.

The adoption tax credit at work

For example: John and Jane Doe adopt a child in 2009. The family spent a total of $25,000 in adoption-related expenses. John and Jane Doe qualified for the maximum federal adoption tax credit for 2009 of $12,150. After utilizing the credit, John and Jane Doe's total adoption expenses were reduced to $12,850.
Doe family adoption expense: $25,000
Federal adoption tax credit: -$12,150

Final total minus available tax credits: $12,850

For more information on the adoption tax credit and exclusion, visit www.irs.gov or contact a local accountant to discuss how these options may help you offset your adoption expenses

This is not a substitute for professional financial advice and should not be relied upon without consulting your tax advisor.