What is the Adoption Tax Credit and Am I Eligible?


The federal government provides an Adoption Tax Credit to eligible families to help with the high cost of adoption. It is important to consult with a tax professional to know if this option is available for your family. Additionally, several states provide state tax benefits to adoptive families.

The Adoption Tax Credit is a federal program that provides a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2018 is $13,810 per child.  Your state may also have its own state adoption tax credit in additional to the federal program.

This information outlined in this post is from the IRS website here on the Adoption Credit and Adoption Assistance Programs.  We recommend keeping receipts and records of all expenses paid in your adoption, including expenses paid in preparation for the adoption such as a Homestudy Report.  We highly recommend speaking with an accountant to confirm you eligibility and requirements for the adoption tax credit prior to filing.


What are “qualified adoption expenses”?  

For both the credit and the exclusion, qualified adoption expenses includes:

  • Reasonable and necessary adoption fees,

  • Court costs and attorney fees,

  • Traveling expenses (including amounts spent for meals and lodging while away from home), and

  • Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

Am I eligible?  

Eligibility for the credit is based on your modified adjusted gross income.  For tax year 2018, the phaseout begins at $207,140 and ends at $247,140. If your gross income amount is below $207,140 for 2018, your credit or exclusion won't be affected by the phaseout, whereas if your MAGI amount for 2018 is $247,140 or more, your credit or exclusion will be zero.

How do I claim the adoption credit of exclusion?

To claim the adoption credit or exclusion, complete Form 8839.pdfQualified Adoption Expenses and attach the form to your Form 1040.pdfU.S. Individual Income Tax Return (also attach applicable schedules) or Form 1040NR.pdfU.S. Nonresident Alien Income Tax Return. The Form 8839 Instructions contain additional information about the adoption credit and exclusion. Also, visit Am I Eligible to Claim a Credit for Adopting a Child or to Exclude Employer-Provided Adoption Benefits from My Employer? You're no longer required to attach the adoption documentation with your tax return; however, you must keep the documentation as part of your records. The IRS encourages taxpayers to e-file their federal income tax returns. Form 8839 can be e-filed with Form 1040 or Form 1040NR. Consequently, taxpayers who e-file their tax returns need not print and mail completed forms to the IRS.

The below article outlines important facts about the adoption credit and was posted by the IRS on their website here.

Nine Facts About the Adoption Credit

IRS Tax Tip 2018-05, January 10, 2017

Adoptive parents around the country may qualify for a tax credit. Parents who either adopted a child or tried to adopt a child may claim the adoption credit. Here are nine things you should know about this credit.

  • Credit. The credit is nonrefundable. This means the credit may only reduce a taxpayer’s tax liability to zero. If the credit is more than the tax owed, the taxpayer can’t receive an additional amount as a refund.

  • Credit carryover. Taxpayers can carry any unused credit forward to the next year. This happens when the credit is more than the tax owed. In other words, taxpayers who have an unused credit in tax year 2017 can use it to reduce their taxes for 2018. Taxpayers can carry any remaining credits for up to five years, or until they fully use the credit, whichever comes first.

  • Exclusion. If the taxpayer’s employer helped pay for the adoption through a qualified adoption assistance program, the taxpayer may qualify to exclude that amount from tax.

  • Eligibility. An eligible child is an individual under age 18. It can also be an individual of any age who is physically or mentally unable to care for themselves.

  • Special needs child. Special rules apply to taxpayers who adopted an eligible U.S. child with special needs. The taxpayers may be able to take the exclusion even if they didn't pay any qualified adoption expenses.

  • Qualified expenses. Adoption expenses must be directly related to the adoption of the child. The expenses must also be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.

  • Domestic or foreign adoptions. In most cases, taxpayers can claim the credit whether the adoption is domestic or foreign. However, the rules for which year a taxpayer can claim qualified expenses differ between these two types of adoption.

  • No double benefit. Depending on the adoption’s cost, taxpayers may be able to claim both the tax credit and the exclusion. However, they can’t claim both a credit and exclusion for the same expenses.

  • Income limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount a taxpayer can claim depending on the amount of their income.

Looking to learn more about the Adoption Tax Credit or become involved in advocacy to support the credit?

The IRS provides details on the Adoption Tax Credit and examples can be found here.

Adoption Tax Benefits: An Overview, by the Congressional Research Service

The Tax Policy Center from the Urban Institute and Brooking Institution provides a comprehensive overview of the Adoption Tax Credit here.

Creating A Family guide to Adoption Tax Credit in 2018 here.

Adoption Tax Credit Advocacy Kit by the National Council for Adoption

Not sure where to begin? Contact us to schedule your Adoption Legal Consultation to discuss the best next steps in your family building options.

Liz Vaysman