ADOPTION TAX CREDIT

Federal Tax Credit

   You may be eligible for a significant federal tax credit from the IRS! The IRS offers a tax credit (a dollar for dollar tax reduction in your overall tax liability) to adoptive families with adjusted gross incomes under a certain level to reimburse them for adoption expenses. 

   For 2006, the maximum adoption tax credit was $10,960.00. Adoptive families with an AGI in this taxable year of up to $164,410.00 are eligible for the full tax credit. The tax credit phases out for families with AGIs exceeding $204,410.00.  These numbers increase slightly each year.

   There is a special rule for those families adopting a special needs child (as determined by WV DHHR) - those families may quality for the full tax credit regardless of whether they have incurred any adoption-related expenses. 

   For domestic adoptions, the credit may be available for each effort to adopt an eligible child, even if the adoption is not completed.  The tax credit is not available for step-parent adoptions.


IRS information on the adoption tax credit:
 
Tax Topic 607

IRS Form 8839

Revenue Procedure 2005-31, 2005-26 I.R.B. 74 - Rules relating to when a foreign adoption becomes final for purposes of taking the tax credit.


Other information on the adoption tax credit:

Federal Adoption Tax Credit for Special Needs Adoptions - Foster Adopt - special needs children resource relating to the tax credit.


The federal adoption tax credit is not available for step-parent adoptions. 

Some employers offer adoption benefit plans which may include reimbursement.  This reimbursement may be taxable.    For more information see, NAIC's discussion of this benefit.


West Virginia non-family adoption tax credit:

Please consult with your agency and the West Virginia tax department to see if you are eligible for this $2,000.00 tax credit. 

WV Tax Credit Schedule - Form WV/NFA-1


Military Adoption Reimbursement

According to DoD Instruction 1341.9, up to $2,000 per child (or up to $5,000 per year) for qualifying expenses is available to military families whose adoptions were arranged by a qualified adoption agency.  http://www.nmfa.org/site/DocServer/DoD_Adoption_Reimbursement_7-06.pdf?docID=6722  is the link to NMFA site papers on this reimbursement. 




Note: In addition to the disclosure set forth below, be advised, this is not a substitute for professional financial advice and should not be relied upon without consulting with your tax adviser. Ms. Stump is not a tax attorney nor an accountant. You may not rely upon this information.