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Understanding the Adoption Tax Credit in 2016

understanding your adoption financial assistance optionsThe adoption tax credit was established in 1997. Since then it has helped thousands of families offset the high cost of adoption. The credit applies to all types of adoption, except for stepparent adoption. Taxpayers who adopt a child may qualify for the adoption tax credit. Before you claim the adoption tax credit in 2016, it’s important to understand how it works and could you benefit from it.

The Adoption tax credit in 2016: 

The maximum adoption tax credit allowed in 2016 is $13,460. However,  the amount of the adoption tax credit will increase or decrease according to the inflation rate, so it usually increases slightly every year. The federal adoption tax credit is non-refundable, and only those with tax liability will benefit. But, families should fill the credit Form 8839 in case their tax liabilities change in the following years. Please, read the instructions and explore your options carefully before you fill out the Form 8839.

Government Form 8839

What adoption expenses qualify?

Only qualified adoption expenses can be reimbursed. These expenses are usually reasonable and necessary adoption fees including court costs, agency fees, attorneys fees, traveling expenses, and other expenses directly linked to the legal adoption of a child under 18 years of age. For example, stepparent and surrogacy expenses do not qualify for the adoption tax credit.

Who can claim the credit?

The adoption tax credit is based on modified adjusted gross income (MAGI). For the 2016 adoption tax credit, families with MAGI equal to or less than $201,920 will be qualified to apply for the adoption tax credit and those families with incomes $241,920 or above will be unavailable to apply. Adoptive parents can also receive up to $13,400 in reimbursement from their employer. You cannot receive both, so if you obtain reimbursement from your employer, you cannot take the adoption tax credit for the adoption expenses.

When can you claim the adoption tax credit?

If your adoption isn’t finalized yet, your tax representative can apply for a child’s temporary tax identification number for the baby. With that number, you can file your taxes before the adoption finalization. For obtaining a temporary tax ID number, you’ll need to fill the Form W-7A. (Temporary Tax ID Form)

For more information on adoption tax credit, you should research the IRS website or contact a qualified tax professional for specific information. You can also speak with your adoption professional if you have any questions about the adoption costs and financing. There are many options for adoption finance assistance you should research before finalizing your adoption financial plan.