When considering adopting a child, the cost may seem staggering, overwhelming, and unaffordable. Spirit of Faith Adoptions (“SOFA”) specializes in private adoptions which can range between $15,000-$40,000.[i] To see the costs of adopting through SOFA, click here. However, the federal government and many states have taken measures to help families offset the cost of adopting a child by providing tax incentives.
Federal Adoption Tax Benefits[ii]
1. Adoption Tax Credit
- The adoption tax credit in 2020 is a dollar for dollar credit up to $14,300 (adjusted annually for inflation) per child.
- The adoption tax credit is non-refundable, meaning if you do not owe any federal income tax you will not receive any money back. However, even if you don’t owe taxes, it may still be beneficial for you to claim the credit as the it can be carried forward and claimed on future tax returns for up to five years.
- If you make more than $214,520 the adoption tax credit will be reduced and if you make more than $254,520, you’re excluded from claiming the credit.
IRS Form 8839 must be filed in order to claim the adoption tax credit and must include your child’s taxpayer identification number (TIN), which is typically their Social Security Number (SSN). However, if you don’t have access to your child’s SSN yet, you can file for an adoption taxpayer identification number (ATIN). “An ATIN is a temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return.”[iii]
2. Income Tax Exclusion Via Qualifying Employer Adoption Assistance Program
Check with your employer to see if it offers a qualifying adoption assistance program. If so, your employer may be able to provide a maximum income tax exclusion of up to $14,300 in 2020. The income tax exclusion is separate from the adoption tax credit and both can be claimed together, so long as they are claimed for separate expenses.
Ohio Adoption Tax Benefits[iv]
In Ohio, adoptive families may claim an adoption tax credit of up to $10,000 for adoption related expenses. There is no income limitation or exclusion as there is under the federal adoption tax credit. Families may claim and carry the tax credit for up to five years.
SOFA Families Have Benefited from Utilizing the Tax Credit and Exclusion
“We feel that the tax credit was helpful in the years following our adoption when we were transitioning from a two-person, two income family to a one income, three-person family. It was nice to have that cushion around tax time.” – Hallie S.
“As a finance professional, I was pleasantly surprised by the amount of financial help to support adoption that was provided through income tax credits. At the time we adopted in 2010, the Federal credit was $13,360 per child and the OH tax credit was $1,500 per child – so the total credits we received covered over ½ of our adoption expense. Ohio has since increased their credit to $10,000 per child. These tax credits can be carried forward against future years’ taxes for up to 5 years. The only challenge with the tax credit refunds is that you have to have the money upfront to pay for the adoption expenses and eventually (as you file your taxes) you get refunded the money. In addition to tax refunds, our family also qualified for my employer’s adoption subsidy benefit which at the time was $10,000 per child. Therefore, the total cost of our adoption was covered by tax credits and my employer’s subsidy but we had to pay up front and eventually we were refunded those monies. Even without the funding assistance, our adoption would have been well worth the cost, as we’ve received great joy a million times over from our daughter Maggie!” – Craig H.
This article was written by our legal extern, Roanna Thawley, Juris Doctor Candidate, Class of 2021, Cleveland-Marshall College of Law
Disclaimer: This information is provided by SOFA solely for informational purposes. For any tax questions and how these credits and exclusions may benefit you in your adoption journey, you should consult your tax preparer and/or attorney.
[i] Department of Health and Human Services, Administration for Children and Families, Planning for Adoption: Knowing the Costs and Resources, Factsheet for Families, November 2016, https://www.childwelfare.gov/pubpdfs/s_costs.pdf.
[ii] Congressional Research Service, Adoption Tax Benefits: An Overview, May 18, 2020, https://crsreports.congress.gov/product/pdf/R/R44745.
[iii] Internal Revenue Service, “Taypayer Identification Numbers” at https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin; See also Internal Revenue Service, “Adoption Taxpayer Identification Number” at https://www.irs.gov/individuals/adoption-taxpayer-identification-number.