Adoption Tax Credit
Financial Assistance for your adoption.
State of Ohio and Federal Adoption Tax Credit
The 2023 Federal Adoption Tax Credit is $15,950 per eligible child. This is a $1,060 jump from 2022. This large of an increase is uncommon, especially in recent years. For instance, in the past six years, the average has been a $238 increase with the largest increase being in the past year from 2021 to 2022 where taxpayers saw a $450 jump. This tax credit is a dollar for dollar reduction of your tax liability. Bottom line the adoption tax credit can help with offsetting the cost of your adoption.
In the coming years the credit should increase slightly based on cost of living.
In order to fully understand and take advantage of the adoption tax credit we highly recommend you contact your tax professional. Your tax professional can help you to determine the extent of the tax credit that is available to you.
Highlights of the adoption tax credit for 2022:
- The maximum dollar for dollar credit in 2023 is $15,950
- The adoption tax credit begins to be reduced (phased out) when your modified adjusted gross income exceeds $239,230 and is completely phased out when the modified adjusted gross income exceeds $279,230.00
- People who adopt children with special needs and meet the income requirements can claim the maximum credit regardless of their expenses
- You may be able to claim the Federal Adoption Tax Credit for a Failed Or Attempted Adoption. Check with your tax accountant.
Eligible Children Include:
- any child age 17 or younger, or
- a child of any age who is a US citizen or resident alien and who is physically or mentally incapable of caring for himself or herself.
- The credit can be used per child, per adoption
Qualified Adoption Expenses are calculated by:
- Adding up all the expenses related to the adoption
- Subtracting any amounts reimbursed or paid for by your employer, government agency, or other organization.
- Adoption expenses include any and all costs directly relating to your adoption and that are reasonable and necessary for your adoption. Such as agency adoption fees, legal fees, birthmother living expenses(for Federal only), social service costs, court costs, and travel expenses.
Records to Keep
Keep the following documents to ensure you get any credit that is allowable:
- Receipts for qualified adoption expenses
- Final adoption decree, certificate or order of adoption,Home study Assessment completed by a licensed adoption agency
- Child placement agreements or court orders
Find out more about the adoption tax credit at www.IRS.gov
Federal Tax Credit- FAQ
Can the credit be carried forward if I don’t have enough tax liability the first year I claim it?
Yes, taxpayers have a total of six years to use the credit—the year they first are eligible to claim it and the next five years.
Is there a limit to the number of credits I can claim if I adopted multiple children?
No. You can claim it for any adopted children (other than a step-child). You just use multiple copies of the form.
Can I claim the tax credit when adopting my grandchild?
Yes. The tax credit can be claimed when adopting a grandchild or relative. This excludes step children.
Can I claim the credit for a failed adoption?
Yes, if you had qualified adoption expenses. It is treated as a non-finalized adoption. So, if you had expenses for an adoption in 2015 but the adoption has failed, you claim them with your 2016 taxes, typically filed in early 2017. Always confirm with a tax professional.
When Can I Claim The Adoption Tax Credit?
You may claim the adoption tax credit in the year after you incurred the expenses. However, if you finalize the adoption in the same year you incurred the expenses, you may claim the adoption tax credit in that year. Furthermore, if you incur expenses in the year after the adoption is finalized, you may take the tax credit in the year you incurred the expenses. This can be confusing, so always check with a tax professional.
How do I apply?
You need to fill out a Form 8839 for the year of the adoption and include it with your Form 1040.
State Adoption Tax Credits
A number of states also offer an additional adoption tax credit to their residents. Therefore, if you live in a state that offers a state-level adoption tax credit (amounts vary by state), ask your tax professional if you may receive these credits as well.
Ohio Adoption Tax Credit has been repealed. BUT… The State of Ohio has developed a Grant to offset adoption costs.
Financial assistance will now come as an Ohio Adoption Grant. Under the very new law, the Ohio adoption grant is $10,000, $15,000 for foster parents adopting the child they foster, and $20,000 for adopting a special needs child. The bill also creates a new $2,500 grant to pay for college expenses for adopted children. However, the new adoption grants are not available in stepparent adoptions.