How Adoption Credit Works

Once you adopt a child, you can claim a nonrefundable federal tax credit that will reimburse the total or part of the sum that you spend during the adoption process. First of all, you need to fill out Form 8839, which is called the Qualified Adoption Expense form, when filling your federal taxes and submit it with all the required adoption documents. You fill out the form with the child's personal information, such the child's name, birth date, and place of birth, as well as if the child has any special needs. The child and their adoption will be evaluated based on various aspects of your adoption situation, such as receiving subsidy benefits or adoption assistance, the child not being able to be returned to their parent's house, and/or the likelihood of the child being adopted if not receiving assistance.

The total amount a taxpayer is entitled to receive from the adoption credit is $14,400, based on 2021 statistics. This credit amount is available for each child a family adopts. It is important to keep in mind you can only claim the adoption credit in the case that your Modified Adjusted Gross Income (MAGI) – an alternative calculation of income that restricts some tax breaks – is within the limits stipulated for that year. In 2021, these figures ranged between $216,600 to $256,660.

To be able to receive the adoption credit, you must pay all the qualified adoption expenses directly from your own pocket, and you can claim it only in the tax year that follows the year the expenses were paid. Also, to receive it you must adopt an eligible child, which is any child under the age of 18 from any country or a child of no specific age who is a citizen of the U.S. and mentally or physically unable to care for themselves.

Example of Adoption Credit

The amount of adoption credit you can claim is related to the sum you have spent during the adoption process. For example, if you have paid $6,000 for your qualified adoption expenses in 2021, you won’t be able to claim the full credit available, which is $14,440. You can only claim the total sum you spent during the process, and you must prove that amount when submitting Form 8839. At the same time, if you spent more than the maximum adoption credit available, for instance, $20,000, you will only be able to claim the total adoption credit at disposal, $14,400.

Another important example comes while considering your tax liability (the total sum of federal income tax that a person is accountable for in that particular year). As the adoption credit has a non-refundable nature, if you are not capable of requesting the whole credit refund during the first year, the reminiscent amount can be requested during the following five years. An illustration would be that, if in 2021 your tax liability is $8,000, the other $6,400 credit balance continues to be available in the subsequent five years after the adoption of an eligible child.