Tax Benefits for Adoption
Many potential adoptive parents are discovering that adopting a child can put a serious strain on family finances. There are two tax benefits to offset the expenses of adopting a child: the adoption tax credit and an exclusion from income of benefits under an employer's adoption assistance program.
Adoption tax credit
The income limit on the adoption tax credit is based on modified adjusted gross income (MAGI) and is gradually phased out depending on income.
| If your MAGI is: | Then the MAGI limit: |
| $174,730 or less | will not affect your credit |
| $174,730 to $214,730 | will reduce your credit |
| $214,730 or more | will eliminate your credit |
The maximum adoption credit for 2008 is $11,650.
Adoption tax exclusion
Parents who work for companies with an adoption assistance program also get a tax break. Parents can receive up to $11,650 in reimbursement from their employer for adoption expenses without paying taxes on that benefit. However you can not double-dip. You can't take a tax credit for adoption expenses reimbursed by your company
- Qualifying adoption expenses are reasonable and necessary adoption fees. Traveling expenses while away from home and other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.
- For domestic adoptions, you can claim the credit for adoption-related expenses in the year the adoption is completed. If the adoption is not, you can claim the credit the following year.
For more information on the adoption tax credit and exclusion, visit www.irs.gov or contact a local accountant to discuss how these options may help you offset your adoption expenses.
