- 1. Adoption Tax Credits Michael L. DeVries, CFP , CHBC, EA
Personal e-mail -[email_address] Office www.vmde.com
2. Question Why Adopt? 3. His Heart, Our Call
- "He took a little child and had him stand among them.Taking him
in his arms, he said to them, 'Whoever welcomes one of these little
children in my name welcomes me; and whoever welcomes me does not
welcome me but the one who sent me.'".....Mark 9:36 - 37 NIV
- "What do you think? If a man owns a hundred sheep, and one of
them wanders away, will he not leave the ninety-nine on the hills
and go to look for the one that wandered off?And if finds it, I
tell you the truth, he is happier about that one sheep than the
ninety-nine that did not wander off.In the same way your Father in
heaven is not willing that any of these little ones should be
lost.".....Matthew 18:12-14 NIV
- "Religion that God our Father accepts as pure and faultless is
this: to look after the orphans and widows in their distress and to
keep oneself from being polluted by the world.".....James 1:27
NIV
4. 5. 6. Note of Change in theAdoption Credit
- Was scheduled to sunset at the end of 2010
- Healthcare legislation extended and revised the the adoption
tax credit
-
- Extended the increased credit to 2011
-
- Made the credit refundable
- Credit Scheduled to Sunset after 2012
- Reverts back to $5,000, or $6,000(special needs)
7. Federal Tax Credit
- Dollar for dollar reduction of tax
Year Credit Note 2010 $13,170 Refundable 2011 $13,360 Indexed;
Refundable 2012 12,170 Not Refundable 8. Qualified Adoption
Expenses
- Reasonable and necessary adoption fees
- Traveling expenses (including amounts spent for meals and
lodging) while away from home
- Other expenses directly related to the legal adoption of an
eligible child.
9. Qualified Adoption Expenses
- Connected with the adoption of a child of a taxpayer's
spouse
- Of carrying out a surrogate parenting arrangement
- That violate state or federal law
- Paid using funds received from a federal, state, or local
program
- That are reimbursed by an employer
- But, benefits provided by an employer under an adoption
assistance program may qualify for the exclusion.
10. Qualified Adoption Expenses
- Expenses in connection with an unsuccessful attempt to adopt an
eligible child before successfully finalizing the adoption of
another child can qualify.
- Expenses connected with a foreign adoption (i.e., one in which
the child isn't a U.S. citizen or resident) can only qualify if the
child is actually adopted.
11. Qualified Adoption Expenses
- Taxpayers who adopt a child with special needs will be deemed
to have qualified adoption expenses in the tax year in which the
adoption becomes final in an amount sufficient to bring their total
aggregate expense amount for the adoption up to $13,170 for
2010.
- They can take the adoption credit or exclude employer-provided
adoption assistance up to that amount, whether or not they had
$13,170 ofactual expenses.
12. Eligible Child
- Child under the age of 18 at the time the qualified adoption
expense is paid
- If the child turned 18 during the year, the child is an
eligible child for the part of the year he or she is under age
18
- A person who is physically or mentally incapable of caring for
himself is also eligible, regardless of age
13. Special Needs Child
- Child whom the state has determined cannot or should not be
returned to his parents and who can't be reasonably placed with
adoptive parents without assistance because of a specific factor or
condition, e.g., ethnic background, age, membership in a minority
group, medical condition, or handicap.
- Only a child who is a citizen or resident of the U.S. can
qualify as having special needs.
14. Employer Adoption Assistance
- Also, adoptive parents may be able to exclude from their gross
income up to $13,170 of qualified adoption expenses paid by an
employer under an adoption assistance program. The credit is
nonrefundable and both the credit and the exclusion are reduced
(phased out) if the parents' income exceeds certain income
limits.
- Adoptive parents may claim both a credit and an exclusion for
expenses of adopting a child. But they may not claim both a credit
and an exclusion for the same expense.
15. When to Claim the Credit
- If the qualifying expenses are paid before the year the
adoption becomes final, the credit is claimed for the year after
the one in which the expenses are paid.
- If the expenses are paid in the year the adoption becomes final
or in a later year, the credit is claimed for the year in which the
expenses are paid
16. Example
- Adoption is Final in 2010
- The taxpayer claims a $3,000 credit in 2009 (for the 2008
expenses).
- The $10,000 of expenses for 2009 & 2010 are combined
together for the credit in 2010.
- How much, if this were a Foreign Adoption?
17. When to Claim Exclusion
- Employer-provided adoption benefits are excluded from the
employee's gross income for the year in which the employer pays the
qualified adoption expense.
- In the case of a foreign adoption, neither the credit nor the
exclusion may be taken until the year in which the adoption becomes
final.
18. Refundable vs. Nonrefundable
- Previously and after 2011 -Nonrefundable
- The amount of the credit can't exceed the sum of your regular
and alternative minimum tax, reduced by the sum of your other
nonrefundable credits
- The credit can reduce your tax
- The amount of credit in excess of your tax will not be
refunded, except for 2010 & 2011
- Credit is carried-forward 5 years(Notice 2010-66)
19. Income Limits
- The credit allowable for any year is phased out for taxpayers
with Adjusted Gross Income over these amounts:
- The phase-out rules for high-AGI taxpayers apply for the
exclusion as well.
Year Starts No Credit Over 2009 $182,180 $222,180 MAGI 2010
$182,500 $222,520 MAGI 2011 $185,210 $225,210 MAGI 20. How to
Claim
- Adoptive parents who paid qualified adoption expenses or who
received employer-provided adoption benefits must use Form 8839 to
compute the amount of the credit and the amount of benefits that
may be excluded from their gross income.
21. How to Claim
- Need valid Taxpayer Identification Number (Social Security
Number)
- IRS can disallow the credit and the exclusion if a valid
taxpayer identification number (TIN) for the child is not included
on the return
- Taxpayers can get what is in effect a temporary identification
number for a child they are in the process of adopting. This form
of TIN, called an adoption taxpayer identification number (ATIN),
enables the adoptive parents to claim the credit and exclusion for
qualified adoption expenses. Form W-7A is used to get an ATIN.
- When the adoption becomes final, the adoptive parents must
apply for a social security number for the child and, once
obtained, the social security number, rather than the ATIN, must be
used.
22. How to Claim
- Notice 2010-66 requires the following attachments to your
return:
-
- An adoption order or decree for US or foreign adoption
finalized in the US
-
- For foreign adoptions governed by the Hague Convention a Hague
Adoption Certificate (Immigrating Child)andeither an IH-2 Visa or a
foreign adoption decree translated into English
23. How to Claim
- Notice 2010-66 requires the following attachments to your
return:
-
- For foreign adoptions not covered by the Hague Convention,
either an IR-2 or IR-3 Visa or a foreign adoption decree translated
into English
-
- For US adoptions that are not finalized:
-
-
- An adoption taxpayer identification number, obtained by the
taxpayer for the child, included on the taxpayers income tax
return
24. How to Claim
-
-
- A home study completed by an authorized placement agency
-
-
- A placement agreement with an authorized placement agency
-
-
- A document signed by a hospital official authorizing the
release of a newborn child from the hospital to the taxpayer for
legal adoption
-
-
- A court document ordering or approving the placement of a child
with the taxpayer for legal adoption, or
-
-
- An original affidavit or notarized statement signed under
penalties of perjury from an adoption attorney, government
official, or other person, stating that the signor:
25. How to Claim
-
-
- An original affidavit or notarized statement signed under
penalties of perjury from an adoption attorney, government
official, or other person, stating that the signor:
-
-
-
- Placed or is placing a child with the taxpayer for legal
adoption, or
-
-
-
- Is facilitating the adoption process for the taxpayer in an
official capacity, summarizing the facilitation.
26. How to Claim
-
- Special needs children adoptions require the adoption decree or
successful foreign adoption papers, as well as a copy of the state
determination of special needs
27. Dependency Deduction and Other Benefits
- Your legally adopted child will qualify as your dependent if
the other dependency tests are met, e.g., you provide more than
half of the child's support.
- Even if the adoption isn't yet final, the child will be your
dependent is if he or she was placed with you for legal adoption by
an authorized placement agency and was a member of your household
for at least part of the year.
- Special requirements apply to adoptions of foreign children who
aren't U.S. citizens or residents.
- Once child is your dependent, you will qualify for the
dependency deduction and for other tax benefits, such as the child
tax credit.
28. State of MichiganAdoption Tax Credit
- Eligible taxpayer can claim a credit equal to the taxpayers
qualified adoption expenses that exceed the amount of the federal
tax credit, or $1,200 per child, whichever is less.
29. State of MichiganAdoption Tax Credit
- Eligible Taxpayeris a taxpayer that claimed a credit under IRC
23 for the same tax year that the taxpayer is claiming the Michigan
adoption expenses credit.
- Qualified adoption expensesare expenses that are eligible to be
used under the federal IRC 23.
30. Adoption Tax Credit
- To ensure compliance with Treasury Department regulations,
please be advised that any tax advice that may be contained in this
communication is not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding tax-related penalties under
the Internal Revenue Code or applicable state or local tax law
provisions or (ii) promoting, marketing or recommending to another
party any tax-related matters addressed herein.