The National Council for Adoption has put together a fabulous article written by Herbert Newell regarding the adoption tax credit. Since most families are in the process of getting their 2009 taxes done we thought this information would be helpful.
“Adoption is a long and often emotionally laborious process. One of the many stressors for families is the financial challenge of adopting. Since its inception in 1997, the adoption tax credit has helped many thousands of middle-income American families defray the high costs of adoption, making adoption a reality and providing loving, permanent families for millions of children who might have otherwise languished in foster care or institutions.
After years of advocacy by adoption organizations, including the National Council For Adoption (NCFA), the Federal Adoption Tax Credit went into effect for tax year 1997. This initial adoption assistant program was part of the 1996 Small Business Job Protection Act and set the maximum credit at $5,000 per child ($6,000 per child with special needs), and allowed for the credit to sunset (expire) on December 31, 2001. In 2001, Congress passed parts of President Bush’s tax incentive package, the Economic Growth and Tax Relief Reconciliation Act of 2001.1 This act extended the adoption tax credit until December 31, 2010 and increased the initial maximum credit to $10,000 per child (for both special needs and non-special needs adoptions) and also indexed this amount for inflation annually. The process of indexing the credit allows for adjusting the maximum allowed amount annually for inflationary factors as they pertain to adoption and the economy. The credit for adopting a child with special needs was made permanent with this act. For 2009, the indexed tax credit maximum was $12,150 per child.2
Current – 2010
The adoption tax credit as provided for in the 2001 legislation is set to sunset in tax year 2010 unless it is renewed by Congress.3 If it expires, the maximum tax credit for the adoption of children with special needs would decrease to $6,000 per child, with the credit for adoptions of non-special needs children expiring altogether. Several bipartisan proposals have been introduced in both the House and Senate that could extend the adoption tax credit. S 2816 and HR 213, introduced in the Senate by Sen. Jim Bunning and Sen. Ben Nelson and in the House of Representatives by Rep. Joe Wilson, would make the tax credits permanent and expand the current credit. For additional information about pending adoption tax credit legislation and other adoption related legislation, please see NCFA’s Adoption Advocate, 2010 Adoption Legislative Issues at http://www.adoptioncouncil.org/documents/NCFA_Adoption_Advocate_No20.pdf
1 Economic Growth and Tax Relief Reconciliation Act of 2001. Pub. L. No. 107-16 (2001).
2 IRS. (2009). Adoption benefits increased. Retrieved from http://www.irs.gov/formspubs/article/0,,id=177982,00.html
3 Caldwell, K. (2010). 2010 adoption legislative issues. Adoption Advocate (20).Retrieved from http://www.adoptioncouncil.org/documents/NCFA_Adoption_Advocate_No20.pdf
*This information is provided for general educational purposes and is not meant as tax advice. This is a general summary and does not cover every specific tax issue and is not inclusive of every situation. You should consult a competent tax adviser for individual advice regarding your own situation.