How Much Is the Adoption Tax Credit?

The adoption tax credit is indexed for inflation, so it increases a little from year to year. The credit amount is for each eligible child:

2023: $15,9502022: $14,8902021: $14,440

You wouldn’t be eligible for the full tax credit if you had only $10,000 in qualifying expenses in any of the years listed above because your credit is limited to the amount of you spend. You are be entitled to no more than the maximum credit amount, even if your expenses exceed that threshold. So, if the full credit is $15,950 in 2022 but your expenses added up to $20,000, you will not get more credit. The adoption tax credit is nonrefundable. It can erase any tax liability you owe the IRS, but you won’t receive the balance as a refund if the credit is more than what you owe. You would still receive a credit for $10,000 if you owe $10,000 even if you qualify for the full tax credit. An adoption related expense can be eligible for credit, even before the child has been identified or the adoption process is complete. Any excess or unused can be carried forward for up to five years.

Income Phaseout Ranges

The adoption tax credit is subject to phaseout ranges based on the taxpayer’s modified adjusted gross income (MAGI). This is the same as their adjusted gross incomes (AGIs) for many taxpayers. Your MAGI is your AGI with a few add-backs, such as any tax-exempt interest you wouldn’t have had to include in your taxable income when you prepared your return. Any income excluded from tax using the foreign earned income exclusion must be added back as well to determine the phaseout range for the adoption credit. The IRS provides a worksheet for figuring out your modified adjusted gross income in the instructions for Form 8839. These figures are also adjusted periodically to keep pace with the economy:

2022: $223,410 to $263,4102021: $216,600 to $256,6602020: $214,520 to $254,520

You can’t claim the adoption credit if your MAGI exceeds the upper limit of the range provided by the IRS. Your credit begins reducing at the first threshold, and the more you earn, the less of a portion you can claim. You can only claim a portion of the credit if your MAGI falls between the range listed for that tax year.

Other Eligibility Requirements

You must adopt an eligible child and pay qualified adoption expenses out of your own pocket to claim this credit. Eligible children include those who are age 17 or younger, or a child of any age who is a U.S. citizen or a resident alien and is physically or mentally incapable of caring for themselves. Qualified adoption expenses are calculated by adding up all the expenses related to the adoption, then subtracting any amounts reimbursed or paid for by your employer, a government agency, or another organization.

Special Needs Children

Special needs children are those who receive adoption assistance or adoption subsidy benefits, typically because they’re in foster care. Benefits can include Medicaid or reimbursement of certain expenses, and they’re received because the state believes that the child wouldn’t be adoptable if they weren’t provided. According to the IRS, for the purpose of adoption tax credits a child is considered to have special needs if:

They’re a U.S. resident or citizenThe state determines that they can’t or shouldn’t be returned to their parents’ homeThe state determines that the child won’t be adopted without the assistance to the adoptive family

The child might or might not have a physical, emotional, or mental handicap as well, but a disability alone won’t qualify a child as special needs for purposes of the adoption tax credit. Nor does being in foster care automatically qualify a child as special needs.

When to Claim the Adoption Credit

You can claim the adoption credit in the tax year after your expenses were paid if they were paid before the adoption was final. While expenses that were paid in the year the adoption was final can be claimed in that year itself. For example, let’s say you incurred $2,000 in adoption related expenses in 2019, $3,000 in 2020 and another $4,000 in 2021 when the adoption was finalized. In this scenario, subject to MAGI limitations, the $2,000 you paid in 2019 would be eligible for the tax credit on your 2020 tax return, while the remaining $7,000 ($3,000 +$4,000) would be claimed in 2021. You must apply for an Adoption Taxpayer Identification Number (ATIN) to begin claiming your adopted child as a dependent if the child doesn’t yet have a Social Security number. The IRS provides comprehensive information about the ATIN on its website.