2022 | How Does the Adoption Tax Credit Work?

The federal adoption tax credit is a nonrefundable credit available for tax liable people that have paid out-of-pocket expenses to adopt either a child under the age of 18 and/ with special needs. For 2022, ATC amount available is $14,890 per child. In this article, you will learn how the adoption tax credit works and discover answers to popular questions about the tax credit.

How Does the Adoption Tax Credit Work?

• When filing their tax return, a family with a finalized adoption, can apply this credit toward their federal tax liability. This credit can reduce what the family owes in federal income tax.
• To claim the adoption tax credit (ATC), you must file IRS Form 8839, which includes specific information about the child’s adoption.
• If the child, by adoption, does not have a social security number yet, the filer can use an adoption taxpayer identification number (ATIN).
• If you do not use all of the credit in the first year, you can carry it forward for up to five years.

What expenses the adoption credit reimburse?

• adoption fees
• agency fees
• court costs
• attorney fees
• travel expenses (including meals and lodging away from home)
• re-adoption expenses related to the adoption of a foreign child

What expenses does the ATC NOT cover?

• the cost of adopting spouse’s child
• any expenses that violate state laws
• any expenses which taxpayer received funds for from any state, local, or federal program
• cost of surrogate parenting arrangement
• costs otherwise allocated as a deduction or credit

Related Post:

Gift of Adoption | Adoption Grants

Who is eligible for the adoption credit?

• Taxpayers whose filing status is: single, Head of Household (HOH), qualified widow(er), or Married Filing Jointly (MFJ).
• Have finalized an eligible adoption.
• Must have tax liability.
• Must have a combined income of LESS THAN $223,410 (for2022 taxes).

What is an eligible adoption?

• Adoption of a child under the age of 18. (If child turns 18 before adoption is finalized, only adoption expenses incurred before they turned 18 are eligible.)
• Adopting a child with special needs. (Even if adoptive family did not pay the full eligible amount for the adoption of a special needs child, they are still eligible for the FULL amount of ATC.)

What is a tax liability?

• A tax liability is the amount of taxes OWED to the federal, state and local governments.

How many years can you apply for the adoption tax credit?

• 5 years.
• You may reapply for the ATC with eligible expenses for up to five years or until the FULL AMOUNT of available credit is claimed.

Does employee/military reimbursement for adoption effect eligibility for the tax credit?

• No.
• As long as the credit/reimbursements are not covering the same adoption expenses, both may be used to their full amount.

How to apply for the adoption tax:

• RECOMMENDED: Talk to or hire a CPA (VERSED IN ADOPTION TAX) to file your taxes. Doing so will ensure you are getting your maximum tax return.

Can you apply for the credit through self-filing companies (such as: TaxAct or TurboTax)?

• Yes. There is an option to apply the adoption tax credit. This will lead you through more documentation. However, consulting one of the live CPA’s on these sites is recommended.

Adoption Tax Credit Information for 2022:

How much credit is available?

• $14,890 (Able to continue claiming ATC for 5 years with eligible expenses OR until this amount is reached.)

What is the phase-out MAGI (modified adjusted gross income) amount for 2022?

• $223,410 (If your household’s MAGI is MORE than that amount, you are INELIGIBLE for the ATC.)

I hope this article clarified any questions you had about the adoption tax credit! Have another question? Please leave it in the comments!