Adoption Credit and Adoption Assistance Programs

Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The dollar limitation applies separately to both the credit and the exclusion. The credit is nonrefundable, which means it’s limited to your tax liability for the year. However, any credit more than your tax liability may be carried forward for up to five years.

An eligible child is an individual who is under the age of 18 or is physically or mentally incapable of self-care.

Qualified Adoption Expenses

  • Reasonable and necessary adoption fees,
  • Court costs and attorney fees,
  • Traveling expenses (including amounts spent for meals and lodging while away from home), and
  • Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

An expense may be a qualified adoption expense even if the expense is paid before an eligible child has been identified.

Qualified adoption expenses do not include expenses that a taxpayer pays to adopt the child of the taxpayer’s spouse.

Income and Dollar Limitations

The credit and exclusion are each subject to an income limitation and a dollar limitation. The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (MAGI). For tax year 2023, the MAGI phaseout begins at $239,230 and ends at $279,230. For adoptions finalized in 2023, the maximum amount a family can receive as credit is $15,950 per adopted child.
In computing the dollar limitation, qualified adoption expenses paid and claimed in connection with an unsuccessful domestic adoption effort must be combined with qualified adoption expenses paid in connection with a subsequent domestic adoption attempt, whether or not the subsequent attempt is successful.

Be sure to consult with your tax professional to analyze your specific tax situation. At Taxperts, we can assess your small business structure and suggest ways to increase your savings. Check out our website, Facebook page, or LinkedIn page to learn more.

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