Your family is growing, and so are your expenses. Fortunately, the federal government offers some financial assistance. If you adopt a child, you may be able to claim a tax credit for qualifying expenses you paid.Further, certain amounts reimbursed by your employer for qualifying adoption expenses maybe excludable from your gross income.
Increased dollar amounts for 2010
If your employer has an adoption assistance plan, for each adoption you can exclude from income up to $13,170 (in 2010) of adoption assistance paid by your employer or paid by you through salary reduction. For adoption expenses paid by you and for which this exclusion is not available, a tax credit is available for up to $13,170 of adoption expenses per adoption. The $13,170 amount is subject to phase-out and is reduced if you have modified adjusted gross income (MAGI) above $182,520 and is fully phased out if you have MAGI of $222,520 (in 2010). If you adopt a child with special needs, the $13,170 amount (subject to phase-out) is available regardless of the amount of actual adoption expenses. The dollar limit is for aggregate expenses for all years with respect to an adoption. (Same rules
and limits--adjusted for inflation--apply to adoptions in 2011.)
When to claim adoption expenses
Domestic adoptions: You generally claim the exclusion for qualified adoption expenses in the year your employer pays the qualifying expenses. For qualified adoption expenses you paid in a year before the adoption is final, you claim the credit in the year after you paid the expenses. You claim the credit for qualified adoption expenses you paid in the adoption year or a later year in the year you paid the expenses. Foreign adoptions: You claim the exclusion or the credit for qualified adoption expenses you (or your employer) paid in a year before the adoption is final in the year the adoption is final. You claim the exclusion or the credit for qualified adoption expenses you (or your employer) paid in the adoption year or a later year in the year the expenses are paid.
Example: Veronica adopts a child in a domestic adoption that is final in 2010. Veronica paid qualified adoption expenses of $1,000 in 2008, $5,000 in 2010, and $2,000 in 2011. Veronica can claim a credit for $1,000 of qualified adoption expenses in 2009, $5,000 in 2010, and $2,000 in 2011.
Refundable credit in 2010
Starting in 2010, the adoption expenses credit is refundable. That is, if the credit exceeds the amount of income tax otherwise due, the excess is refundable to you.
Credits carried over to 2010
The adoption expenses credit was not refundable prior to 2010. As a result, you may have a credit from a prior year carried over to 2010. Such a credit is refundable in 2010. Furthermore, a credit carried over to 2010 is not subject to the phase-out income limitations in 2010.
You must file paperwork
If you claim the adoption expenses exclusion or credit, you must send in a printed-out income tax form along with any substantiation documents--even if you file electronically. IRS Form 8839
- Ossining resident Michael Salmon is a Senior Financial Advisor with Ameriprise Financial in Midtown Manhattan. Michael Specializes in Financial Planning,Investment Portfolio Management, Retirement Planning Strategies, Estate Planning Strategies,Saving for Education Michael is an active public speaker and financial columnist. You can reach Michael at (646) 964-9470 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
