The Adoption Tax Credit: Qualifications and Benefits (Part II)

Continuing in our series on the Adoption Tax Credit, here are some additional guidelines for adoptive parents to keep in mind.

When a Couple is Eligible to Take the Credit: The main difference between the rules pertaining to foreign verses domestic adoptions is in what tax year the couple is allowed to claim the credit. The rules are more flexible for domestic U.S. adoptions; the credit can be claimed during the tax year when the expenses were incurred or the year the adoption is finalized, whichever comes sooner. In the case of an inter-country adoption, the adoptive parents must wait until the adoption is finalized before the credit can be taken.

Adoption Tax Credit

Special Needs Adoptions: Special needs adoptions are in a separate category as far as the expense reporting guidelines are concerned. Couples who adopt a special needs child do not need to keep track of their expenses and are automatically eligible for the full $12,970 credit, whether their expenses incurred equals that amount or not. It should be noted that a good percentage of foster children that are adopted would end up falling into the special needs category.

Income Limitations: As with most other credits, the Adoption Tax Credit is available only to couples that meet certain income requirements. As of 2013, they are as follows:

  • If your combined household income is at or below $194,580, you are eligible for the full credit.
  • If your income is between $194,580 and $234,580, you are eligible for a partial credit.
  • If your income is greater than $234,580, you are not eligible for the credit at all.

Adoption Assistance: Many employers offer reimbursement of adoption expenses up to a certain amount. The IRS allows employers to designate up to $12,970 in pre-tax income to go toward qualified adoption expenses and employers may choose to reimburse up to a set amount beyond those expenses paid from the employee’s pre-tax income. However, any expenses paid through the employer cannot also be claimed as part of your Adoption Tax Credit.


The Adoption Tax Credit is a wonderful benefit for adoptive parents that bring another child into their family but the eligibility issues surrounding this credit can be confusing. If you are unclear about any of the requirements for receiving this credit, consult your tax professional for further guidance.

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