What is an Adoption Credit?

An adoption credit is a tax credit you can claim on your US federal income taxes when you adopt a child in a given year. Generally the adoption must be of a child under the age of 18, or it must be of a person with severe developmental or physical impairment, who is considered disabled. The adoption credit is meant to offset the costs of adopting a child, and no matter when you adopt a child in a given year, you can further take a tax credit for that person’s support.

If you plan to adopt, it makes sense to keep records of all costs associated with the adoption so you can receive the highest amount in adoption credit. For instance, if you adopt a child from another country, you can not only deduct any legal fees or fees to an agency assisting you, but also any costs involved in traveling to get a child. Other things that might be allowable under the adoption credit include staying in a hotel near the agency while you wait to pick up a child, and loss of pay due to time off of work. In general, keep all receipts and bills because the total amount of the federal credit can be up to slightly over $10,000 US Dollars (USD).

In order to receive the adoption credit, at the end of the tax year in which you adopt a child, you must fill out Form 8839 for the US Internal Revenue Service (IRS), in addition to filing your tax return. The credit adjusts the amount of your taxable income, lowering it by whatever money you spend directly on adopting a child. Not everyone will receive the same amount of adoption credit. It is usually only reduced by the amount you actually spent or by money lost in the process of adoption. If you adopt through a private agency, legal fees and travel can quickly exceed the maximum allowable credit, so you may not completely get your money back, though it’s sometimes possible to take two adoption credit deductions if you adopt a second child in the same year.

For many couples seeking to adopt, the adoption credit makes it possible to spend the money needed to see an adoption through. Knowing that you will be paying less taxes at the end of the year can help to offset the costs of adoption. It should be noted this credit doesn’t directly reduce your taxes. Some credits are deducted from your taxes owed. Instead the credit is reduced from your total income, which leaves you with a smaller adjusted gross income, and thus less tax. You won’t get back $10,000 USD from the IRS, but you’ll probably end up having a lower taxable income.