Adoption Tax Credit and Health Care Reform

Good news for adoptive families from the health care bill signed into law. The adoption tax credit has been extended until the end of 2011 and increased from $12,170 to $13,170 for adoptions occurring after January 1, 2010 (it’s retroactive). The credit is also now refundable.

You can read the bills text on page 903 of 906 here.

USA Today’s brief analysis:

“Taxpayers who adopt children:  Effective in 2010, the bill makes the adoption credit refundable, increases the credit by $1,000 and extends the increased adoption credit through 2011.”

[HT: R. Austin Wilkerson, Wilkerson Legal PLLC]

54 thoughts on “Adoption Tax Credit and Health Care Reform

  1. oh hallelujah! so glad it helps lower income families more now, too, by being refundable… always thought it was a bit (ok, a LOT) goofy that the people who make the most money would benefit the most!

  2. Pingback: Update: Federal Adoption Tax Credit Extended « Our Adoption Journey

  3. hey jason … what does it mean to be “refundable” ??? this is great news! we are THREE YEARS and waiting and just re-upped our paperwork of the second time, so the extension is just fabulous.

    • A refundable tax credit is one that is similar to the earned income credit. You can apply the money even if it is more than your tax liability, meaning you may (emphasis added) be eligible to receive a refund over and above your tax liability.

      • That’s right. It’s just like the EIC (Earned Income Credit).

        You can take full advantage of the Adoption Tax Credit by adopting through Angel Adoption, Inc. We have the cheapest adoption rates around.

        You can fill out the application here – Free Adoption Application

      • I’m assuming that the carryforwards from previous years will not be refundable? We don’t have a lot of tax liability so therefore we have not been able to use up the tax credits. They aren’t a lot of help to us in paying off our adoption debt because we can’t get them. Am I understanding this all correctly?

  4. A refundable tax credit is excellent. Do you know if the refundability (if this is a word) will apply to previous adoptions?

    • That’s what I’m wondering, too. I’m guessing it won’t apply to previous adoptions if they were finalized before Jan. 1, 2010, since that seems to be the date it’s retroactive till. But if anyone finds out that it could apply to older adoptions, I’d love to know! We were one of the families that really didn’t get much out of our adoption tax credit, because we have so many kids and deductions that our liability is fairly low. Twas kind of a bummer after expecting $10,000 back from the adoption expenses…

      • It looks like it may only count for adoptions finalized after Dec. 31, 09 according to the language of the bill (p. 906):

        “EFFECTIVE DATE.—The amendments made by this section
        shall apply to taxable years beginning after December 31, 2009”

        I wish it was for previous adoptions. Our adoption of our daughter from China was finalized in 2008 and as a pastor family with our tax liability status we couldn’t take the credit. But with the new *refund* status, that will REALLY help us out with our current Taiwan adoption process.

      • Go back and file an amended return beginning with the year your children were adopted. Carry forward the non-deductible portion and in 2010, any remaining will be fully refundable.

  5. Check with your accountant. There is an income limit on the tax credit. If you’re fortunate enough to bump the ceiling of the income barrier for the credit you will get nothing. (Effectively costing you more to adopt than your neighbor who makes a little less.)

    If you are near that income breakpoint, consider planning your annual income to allow for the credit.

    • Chris, do you happen to know what that income limit is? I read through the last few pages of the document but didn’t see any specifics about the income limit, only cost of living adjustments. Thanks for the tip!

      • As best I recall, the breakpoint was $120,000. Check with your accountant. (I am not a financial guy…)

      • Chris are you talking about the Adoption Tax Credit Income limit? If so if you make over $182,000 you only qualify for a certain amount and if you make over $222,000 and some change you won’t qualify at all. Hope this helps you out

      • I’m well aware of the Tax Credit Income limit. The reality of this idiotic policy (as well as many other of our US Income Tax policies), is that it effectually punishes higher income families pursuing adoption.

        For instance, if Joe’s family makes $225,000/year and adopts a child for which the expenses are $13,000, then Joe pays it all. (Which should not be a financial hardship, since Joe makes pretty decent money.)

        If Ken’s family makes $185,000/year and a adopts a child for which expenses are $13,000, then Ken effectively pays nothing. The government will lower his tax burden by $13,000 or give him a larger refund check by that amount.

        There’s not too much difference between the two families. They probably live next door to one another. But one family gets a “free” adoption, while the other family subsidizes them both.

        This is just one small example of the lunacy of our tax laws.

  6. Pingback: Adoption Tax Credit Extended Until 2011 « Adoption Update

  7. What does that mean for us families that have an adoption credit carryforward? Since that is to go on our 2010 tax return we file in 2011 will that all be refundable?

  8. So does that mean if your adoption isn’t finalized until 2012, we still don’t know if there will be an adoption credit beyond $6000 for special needs children?

  9. Pingback: Father’s Day 2010 – We have decided to adopt again! « inMessment Blog

  10. Pingback: Father’s Day 2010 – We have decided to adopt again! « inMessment – Life's Investments

  11. We adopted in 2004, and had 5 years to carry over but probably didn’t get all the credit because we didn’t have much tax liability. This is great news for all those finalizing this year, as long as you aren’t in a high tax bracket. I read somewhere that your taxes can be amended within 3 years. It’s something to look into if you finalized before the reform bill took effect.

  12. I have read the bill and have not read anywhere where it states the credit is refundable. I see the increase in amount and the time extended…but haven’t seen any confirmation that this credit is actually rebated back back to the family adopting within the said time frame. Has anyone found actual proof this is refundable?

    • Page 904: “(b) CREDIT MADE REFUNDABLE.—
      CREDITS.—The Internal Revenue Code of 1986 is amended—
      (A) by redesignating section 23, as amended by subsection
      (a), as section 36C, and
      (B) by moving section 36C (as so redesignated) from
      subpart A of part IV of subchapter A of chapter 1 to
      the location immediately before section 37 in subpart C
      of part IV of subchapter A of chapter 1.”

      • Elizabeth,
        Yes, thank you for clarifying that…I did read that part but got somewhat lost in all the sections of sections.
        So…to further confirm…I contacted a CPA in Missouri and had him do research on this matter personally. He did confirm that yes, the credit is made refundable until Dec. 31, 2011 unless extended. This credit is also per child.
        His information is as follows if anyone would like to reference further.
        Thank you!


        Nick Morfeld 147-624-1065 Ext 1065

  13. Question ~ does anyone know if the change from “credit” to “refund” applies to adoptions before 2010? In other words, if you have no tax liability, and a carry-over of adoption expenses from 2009, do you get an actual refund, or does refund only apply to for adoptions taking place in 2010 or after?

    • Yes! Adoptions 2005-2009 with a remaining carryover are also allowed! You will receive your carryover as a REFUND! The per child amount is subject to the year in which you finalized.

      • Are you saying that if our adoption was finalized in 2005, we can still carry-forward when we file our 2010 returns this year? Isn’t that beyond 5 years of carryover? Thanks to anyone who can enlighten me.

  14. This is so confusing and frustrating we adopted june 2009 ( four children ) and the credit was just carried over as it was no use to us. I hope they make it where those that have credit left can also get it refundable.

    • Thanks Kelly ~ wow, fantastic news – this will be a huge help to my family, as we adopted 3 siblings from Africa a year ago. 🙂

    • YES! IT IS refundable for any of the credit you have left over . My husband spoke to the IRS this week!!! We adopted 4 in 2009 and will get the full amount times 4 refunded. ( had not used any of the credit)

      • does the irs refund the full tax credit to children adopted from fostercare? Were your children adopted from fostercare or a private adoption? Will you have to provide alll your expense documents or will you just get the refund x4 with the adoption decrees sataing the year?

  15. After what looks like forever, Congress has finally passed a health care reform bill. President Obama’s major aim for the early a part of his time period seems inside reach. The question is, although, what is in this bill? What actual changes will individuals expertise because of all this wrangling? Or are these all political games with little actual impression? click here

  16. Amy, if the foster care adoptions have been determined to be special needs, then they are fully refundable after any tax liability. It doesn’t matter if you spent nothing on the adoptions. If it’s from a prior year, you need to have amended your tax return for that year and any subsequent year. For current year adoptions, you need to submit your adoption degree and whatever form your state gave you when they classified the adoption as a special needs one.

    • I just adopted 3 special needs children through DHS. And after over and over typing into the tax estimator and getting the high amount i thought for sure i was doing something wrong. But after having my taxes done at H&R block and them getting the same refund amount. I feel a lot better. I thought for sure i was doing something wrong. But according the H&R block it was right. However I did have to mail my taxes in and couldnt e-file. Which means its suppose to take between 6-8 weeks to get back… Has anyone recieved theirs back yet whom qualified for this credit.?. Since ive mailed it in I have heard anything from the IRS. But its only been a couple weeks Im trying to be patient. Its just its hard to imagin getting that amount back. It’s kinda like winning a small lottery! lol… This credit is going to be a blessing for our family. Its so nice that it is refundable this year.

      • I don’t know anyone who’s gotten a check back yet but I did speak with the IRS directly and it’s for real. I did hear that the largest check they do is $9,000 (I think that’s it) so if you do paper checks, you’ll get a few of them.

      • Ashley , perhaps you might give me a call on the HF100 cell phone (903-245-0515)- would like to update you on the IRS deal. Tim.

        For other’s reading, the situation is that in theory the IRS is allowing the refund to work retroactively back to 2005. However, they are passing all documentation (court finalisation, adoption assistance docs, etc etc) on to a seperate department for examination.You may well be required to resend your documentation a second time to a different address . This will cause a delay. In addition the North American Council on Adoptive Children has sent out an advisory letter confirming this. As of this week (21st March) they have heard of very few people who have actually received refunds yet.

        Best regards.

        Tim Clark Hope for 100.

        Anyone can call me for more details on the HF100 number above.

      • Re: Elizabeth’s statement, they must have made a change because I received a check back for $23,000. About $18,000 of that was carryover adoption tax credit and the rest our regular refund. It took about 8 weeks after I mailed in our paper tax forms and supporting documentation.

  17. Has anyone actually gotten this yet? We sent in all of the required paperwork in February, then got a paper around the end of March telling us we needed to send in more paperwork. We called and the IRS told us some how they had lost the needed paperwork when our return moved from one department to the next. We faxed it in right away, and we still are waiting. What makes me ask this is that a friend of ours who has adopted twice had her paperwork “lost” as well. What are the chances? So we started asking and neither of us know anyone who has actually been given the money yet.

  18. who introduced the adoption refund into the health care bill? i had no idea until i got my tax return back from the cpa and saw a huge refund owed to me. i want to write that lawmaker a thank you note.

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