What to Know About Adoption Tax Credits

Everyone knows that adoptions can get expensive. Many hopeful adoptive families talk about tax credits and how they can help with adoption fees. However, it is hard to know what tax credits you might be eligible for as well as when they will help your current financial situation. Learn more about these essential things to know about adoption tax credits available to Florida residents:

Adoption Tax Credits Are Not Refundable

The federal adoption tax credit is not refundable, meaning that you won’t receive a refund based on the amount of money you spent on an adoption. You are eligible for a tax credit based on your federal income tax liability. This means that your adoption tax credit will reduce the amount of taxes that you owe on your federal tax return.

Your household income also affects how much tax credit you can claim at the federal level. In 2019, families who have a modified adjusted gross income below $211,160 can request a full adoption credit. Households making between $211,160-$251,160 can claim a partial credit. Those adoptive families making more than $251,160 cannot claim an adoption tax credit.

Tax Credits Apply on Finalized Adoptions

One of the hardest parts of an adoption tax credit is that you can only start to claim it on your taxes in the year that the adoption is finalized. So, many adoptive families have to pay the adoption fees upfront without the guarantee that they will receive a tax credit in return. If your adoption spanned more than one calendar year, usually the credits will need to be separated as well.

Tax Credits Don’t Usually Cover the Entire Cost of Adoption

The current federal tax credit in 2019 is $14,080. This means that adoptive families who have an adoption finalized in 2019 can apply for the federal tax credit. However, many adoptions cost well beyond this amount. Sometimes families can recoup most of their adoption expenses, but very rarely can a family receive all of their adoption expenses back when adopting privately or through an agency.

It is important to keep receipts and proof of the adoption expenses paid during the adoption process. This can include travel and mileage expenses as well as fees paid to an adoption agency. Your tax preparer should be able to help you determine what is valid when itemizing your adoption expenses.
Special Needs Adoptions Are Different

For those families adopting a child with special needs, the full amount of federal adoption tax credit is available to claim on a return no matter your adoption expenses. A disabled child may not always be considered special needs. Contact your social worker and accountant to help determine if your child fits into this category. Florida residents adopting a child from the foster care system may be eligible to receive adoption assistance through the state. Only certain children qualify, but your social worker should be able to help you determine if your child is eligible.

Tax Credits Don’t Last Forever

There is a 6-year time limit on when an adoptive family can claim the Federal Adoption Tax Credit. This includes the year that the adoption finalizes plus five years afterward. Many families use this time to claim as much as they can the first year and then the rest of the adoption expenses over the following years. However, the adoption tax credit is not available if a family hasn’t used it past the 6-year mark after an adoption finalizes.

Adoption Benefits for Florida State Employees

There are additional adoption benefits for those families with state employees. This adoption benefit is administered by the Department of Children and Families and the Office of Child Welfare. If you or your spouse work for the state government, you can apply to determine your benefit eligibility. This program only applies to those children adopted after July 1, 2015, from within the foster care system in Florida. International and private adoptions do not qualify for this benefit. Families can receive up to $10,000 based on the needs of the child and the employment status of the parent.

It is important to always speak to your accountant or tax professional during the adoption process to answer questions about your eligibility in receiving a tax credit. They can help you determine what qualifies for the tax credit as well as how to break up the credit amounts if needed. Understanding these tips about the adoption tax credits available to Florida residents is vital in helping ease the cost of adoption.

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