Tax Credit Resources for Funding an Adoption Funding Resources After You Adopt

tax credit

DATED MATERIAL
We at Nightlight are neither accountants, nor are we financial or tax experts. The material in this document can change as new laws are implemented or organizations change policies. All information, especially related to taxes and benefits, should be discussed with your CPA or other tax expert. This information is provided as general information and is not a guide in completing tax forms, etc.

FEDERAL AND STATE GOVERNMENT

FEDERAL TAX CREDIT: $12,970 FOR ADOPTIONS OCCURRING IN 2013

Great news: The adoption tax credit has been permanently extended!!

The Adoption Tax Credit is $12,970 for 2013. For a thorough overview of the tax credit read the FAQs on the tax credit AdoptionTaxCredit.org. For adoptions occurring in 2014, the tax credit will be $13,190.

What this means to, you, the adoptive families:

You may apply up to $12,970 of your adoption expenses toward your federal taxes when you file your 2013 taxes, depending upon the year that your adoption was finalized.

If you adopted in 2012, the Joint Tax Committee says that for 2012, the maximum benefit will be $12,170 (indexed for inflation after 2010).

When the adoption tax credit is only a credit, you can only get back what you have paid in taxes. This amount can be carried forward for up to 5 years. So if you only pay $4,000 in federal income tax per year, and you adopted in 2012, it will take you 3 years in filing taxes before you can recoup all of the tax credit due you.

What if I adopt 2 children? Do I get double the tax credit/refund?

If you adopt two children in 2013, you could have a tax credit up to $25,940 and your total expenses come to $25,940 or more. It is important to note that if your income is too high, you could be phased out of the tax credit. Also, if your income is lower and you receive many tax breaks, you may not be able get the tax credit if you are not paying Federal Income Tax. If you adopt three children, the credit/refund could be about $37,000, as long as your adoption-related expenses are that high.

This means that if you adopted two children and the adoption fees and expenses came to $30,000, and your federal tax liability was $7,000, you would receive the $7,000 as a credit against your liability. Because the full tax credit applies only to families earning an income of $194,540 or less, most families will need to carry their tax-credit forward at least one more years if they adopt more than one child.

If I apply for the Adoption Tax Credit, am I likely to be audited?

69% of all adoption tax credit claims in the 2012 filing season were selected for audit. This means you can reasonably expect your credit application to be audited. Track your adoption expenses and keep all receipts from the day your adoption journey begins.

What if my employer provides adoption benefits?

If your company has employer-provided adoption assistance, you can receive up to $10,100 in tax-free income. Also, your employer can reduce your salary to pay the adoption benefit so that you can receive tax-free income.

So if your adoption expenses, including all agency/attorney fees, come to $30,000, and your employer gives you $12,970 as an employee benefit, which is tax-free, and you pay $3,000 in federal income tax, then your total expenses related to the adoption the first year would be only $17,000. You can continue to take the tax credit each year for five years until you reach $12,970 in tax credit. Your overall net cost for the adoption could be as low as $12,970 for such an adoption.

We encourage you to talk with your employer, who may not normally offer adoption benefits, to consider providing this benefit to you. You are permitted to reduce your salary by up to $12,970 and instead be given this benefit as non-taxable income. So if your adoption fees and expenses come to $28,000, and your employer gives you $12,970 in tax-free income, you will most likely save in taxes owed overall to the State, to Social Security, and Medicaid as well as to the federal government. If you are adopting siblings, the employer-provided benefits can double or triple, based on the number of children you are adopting as long as your adoption related expenses are also this high.

If your company is the rare employer that provides more than $12,970 in adoption benefits, then the remaining benefit over $12,970 is taxable. So if you receive $15,000 in adoption benefits from your employer, you will have to pay taxes on the $2,030.

Read more about employer benefits go to http://adoptivefamilies.com/articles.php?aid=832

Here is what someone said about Wheaton College of Illinois “The model chosen by the college is to provide an equivalent benefit to parents by adoption as they do for biological parents. A parent is a parent and a family is a family! In dollars and cents the adoption benefit is an approximation of the insurance costs for a normal and healthy delivery. That works out to be just $10,320. An additional benefit of the financial benefit is the growing number of adoptive families within the college community.”

See information on page 4 regarding employer benefits

When is a family’s income too high to get the tax credit?

The tax credit is phased out for families with a gross adjusted income (AGI) of $194.540 or more, and is completely phased out for those with an AGI of $234,580 or more.

What about failed adoptions?

If you adopt domestically and the adoption fails, then you can take the adoption tax-credit the year after your adoption has failed. (No credit can be taken for failed international adoptions.) So if you were in the process of adopting domestically, and spent $7,000 on adoption related fees and birth mother living expenses and the birthmother changed her mind in 2012, you can take the tax credit of $7,000 when you file your 2013 taxes in 2014. Of course, you have to wait until 2014 to receive those funds. Likewise, if you were to enter an adoption in 2013 and the birth mother changes her mind, then you cannot claim the lost funds as a tax credit until you file your taxes for 2014.

What about adopting children with special needs?

The special provisions for those adopting children with special needs who pay minimal or no adoption related fees may still be eligible for the tax credit if the adopted children are placed through social services or an agency with a contract with social services.

(Nightlight cannot provide tax advice to your specific situation. This information has been provided in conjunction with attorney John Hine for Greenville, SC. As with all tax matters, consult with a tax attorney or CPA.)

For more information on filing for the adoption tax and other information go to: ABBA Fund: Everything You Want to Know and More About the Adoption Tax Credit by Jason Kovacs. This document has up to the minute information.

State Tax Credits

Some states provide a tax credit. For example, in South Carolina families may be eligible for a $2,000 income deduction on their SC Individual Income Tax return if they have adopted a child with special needs or one who is at risk for special needs. The deduction can begin in the year the adoption was made final. A letter from the adoption agency certifying that their adopted child had a special need or was at risk, should be attached to the family’s tax return. Consult the instructions accompanying state tax returns or a tax advisor.

SC NON-RECURRING COSTS SUBSIDY

Many South Carolina families adopting domestically or adopting an international child who came to the US on a guardianship program are approved to receive $1,500 from the State of SC when adopting. The information regarding this is included in the Nightlight home study packet.

EMPLOYER ADOPTION BENEFITS

 

DAVE THOMAS FOUNDATION

www.davethomasfoundation.org

This program provides information about adoption benefits to employers and employees in both the public and private sectors. Funded by the Dave Thomas Foundation for Adoption, the project maintains a database of employers with adoption benefits—financial reimbursement, paid and/or unpaid leave time, and resource and referral services. This list is updated regularly. As a result of this program, more than 250 employers have implemented or improved adoption benefits, impacting 1.5 million employees nationwide.

CALIFORNIA EMPLOYERS

AC Vroman Inc.
Acrometal Companies Inc.
Adaptec, Inc.
ADC Telecommunications
ADP Foundation
Advantis
AES Corporation
AGIA, Inc.
See a full list of CA Employers in the Tax Credit PDF Document

COLORADO EMPLOYERS

CoBank $3,500
CSG Systems, Inc. $5,000
McKesson Corporation $2,000
Merlin International, Inc. $10,000
Molson Coors Brewing Company $3,000
Verizon Business $10,000

SOUTH CAROLINA EMPLOYERS

Listed are employers who provide adoption benefits. The information can change as employers decide to modify their benefits package.

STATE OF SC EMPLOYEES

State of SC employees can receive up to $5,000 in benefits and $12,970 if the child has special needs. There is a pool of money that is divided out among the adoptive families. There is also a specific time frame in which you can submit the request for benefits. Check the Employee Insurance Program website for details on their Adoption Assistance Programs.

Blackbaud, Inc. $3,000
BMW $5,000
First Reliance Bank $5,000 8 12 weeks
First Sun Management Corporation $7,000 3
FiJi $7,000

FEDERAL EMPLOYEES

www.opm.gov/employment_and_benefits/worklife/officialdocuments/handbooksguides/adoption/index.asp
Federal employees can check the Office of Personnel Management website for detail on adoption benefits.Federal Family Medical Leave Act

Unpaid leave under the Federal Family Medical Leave Act is also an option. This act allows individuals to take up to 12 weeks off, unpaid with benefits without jeopardizing employment. The leave can provide valuable time for newly adoptive families to bond with their new child.