Adoption is a profound journey that a smaller percentage of American families choose to embark upon, and it is inspiring to support clients navigating this transformative process. There are significant tax credits available to ease the financial burdens of adoption. A clear understanding of when these credits apply and how to claim them can greatly enhance their experience, allowing families to embrace the joy of welcoming new life into their homes.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: How do you exclude employer-paid expenses from your income?
A: Complete Part III of Form 8839. Do not enter the employer reimbursement amount on Line 5 under Part II of Form 8839. Keep in mind that the same expenses cannot be used for both the exclusion and the credit.
Q: Is it different when an emergency foster care placement turns into an adoption?
A: Yes. If a child was initially placed in foster care – even as an emergency placement – and later adopted by the same family, this can be considered a special type of adoption. In this situation, foster care expenses generally cannot be claimed as adoption expenses. However, expenses specifically related to the adoption process – such as legal fees, court costs, and other related expenses – may be eligible.
Q: If you spend $3,000 to adopt a child with special needs, can you still claim the entire $16,810?
A: Yes. You may enter $16,810 on Line 5 under Part II of Form 8839. Even if your actual qualified adoption expenses were less than that – or if you had no qualified adoption expenses at all – you may still claim the full $16,810 for adopting a child with special needs. See §23(a)(3) for reference.
To learn more about qualifying for the adoption credit, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.