Yay, we did it! The federal Adoption Tax Credit has been improved and extended until Dec. 2011. This law was included in the Health Care Reform bill which became law on March 22, 2010. I’m pretty creative in coming up with ways that adoption is good for all concerned, but even I think the connection of the adoption tax credit and health care is tenuous. I guess the old adage that making laws is a lot like making sausage is true. It’s best to just enjoy the finished product without looking too closely at how it’s made.
The maximum credit will increase from $12,150 to $13,170 per eligible child. As with the old adoption tax credit, this credit applies to both domestic and international adoptions and to both special needs and non special needs adoptions. This increase is retroactive to January 1, 2010. The biggest improvement of all is that the Adoption Tax Credit is now refundable. I am not a tax lawyer or an accountant, but from what I have been able to glean from the limited information “out there”, making it refundable means that if your credit is greater than the taxes you owe, the difference will be refunded to you as part of your tax refund. In the past, if your adoption credit was greater than the amount you owed in taxes you had to carry it over for up to five years in order to take full advantage of the credit. Some families were never able to take full advantage. Now, the IRS will include the difference in your refund check. To paraphrase Vice President Biden, this is a big “darn” deal. (Sorry Mr. Vice President, this is a family friendly blog so I had to take liberties with the quote.)
An income limit exists for receiving this tax credit. In 2009, the credit starts phasing out if your modified adjusted gross income is $182,180, and is completely phased out at $222,180. The new law states that the income limit will be adjusted for inflation, so it is likely that this limit will increase slightly.
This blog reflects my understanding, but I’m not an expert. As always, when it comes to taxes, check with a tax professional for the specifics and how they will apply to you.
To see a full copy of this law, go to the Health Care Reform Bill, and scroll down to the very bottom (page 903-906). For more information on Affording Adoption and the Adoption Tax Credit go to our page with that title. Note that none of the IRS forms or fact sheets on that page have been updated to reflect the new Adoption Tax Credit. We still have a ways to go with the Adoption Tax Credit. We will be facing this same battle when the deadline for termination of the credit comes up again in Dec. 2011. We need to make this credit permanent.