Business Law & Transactions Blog

Adoption Tax Credits for Same-Sex Couples

Now that same-sex marriage is legal in all 50 states, LGBTQ adoption is becoming more and more common. In some cases, LGBTQ couples adopt a child jointly; in others, a stepparent adopts a biological or adopted child of the spouse. Adopting a child, like having a biological child, has tax implications. Since adoption tax credits are only available to legally married couples, the fact that same-sex marriage is now legal is a boon to same-sex couples who want to adopt a child. Adoption tax credits apply to federal income tax only, however. New York State does not offer a state adoption tax credit.

If you and your spouse are considering adoption, or have recently adopted a child, it is essential that you consult with an experienced tax attorney, one who is familiar with same-sex legislation as well as tax law.

What is the difference between a credit and a deduction?

The difference between a tax credit and a deduction is that a credit can be deducted directly from the taxes that you owe so you end up being reimbursed for the precise amount you spent, whereas a deduction is applied as a reduction of income, affecting the amount you will be taxed.

How much is the Adoption Tax Credit?

Though adopting a child is a wonderful, exciting process, it is also typically an expensive undertaking. Recognizing this, the IRS provides some financial relief for adoptive parents in the form of adoption tax credits. An adoption tax credit is not the same as a child credit, meaning that a couple with an adopted child can take both. How much tax credit you and your partner can get depends on your adjusted gross income. The government assumes that those couples with high-income levels can better absorb the cost of adoption.

Same-sex couples whose gross income is under $203,540, will receive a credit of $13,570 per child. Couples who earn between $203,540 and $243,540 will receive only a partial tax credit, and those whose incomes are over $243,540 will not qualify for any adoption tax credit at all. This scale of disbursement helps to ensure that the parents for whom adoption fees are the greatest burden will receive the most financial benefit.

Adopting a Special Needs Child

If you adopt a child with special needs, the government offers you a bit more assistance. You are permitted to claim the full amount of the adoption credit no matter what your adoption expenses are. As a matter of fact, you will be granted the full adoption tax credit amount even if you have had no expenses in the adoption process. A child is considered to have special needs if the state determines that:

  • The child requires assistance for medical or psychological disabilities
  • The child cannot be kept in its original home because of concern for its health & safety
  • The child will not be adopted unless assistance is provided (perhaps because of age)

How do same-sex couples prepare to qualify for an adoption tax credit?

We are all aware that the IRS requires documentation of income and deductions. It also requires documentation of all legitimate adoption expenses. Adoptive parents must keep accurate records of all expenses relating to the adoption, including, but not necessarily limited to:

  • Adoption fees
  • Attorney fees
  • Court costs
  • Agency fees
  • Consultation fees
  • Legitimate expenses of the birth mother
  • Travel expenses (including meals and lodging) necessary to the adoption
  • Expenses relating to the adoption of a foreign child (re-adoption)

As adoptive parents, you should be aware that the following will not be considered qualifying adoption expenses:

  • Those for which you have received funds under any state, local, or federal program
  • Those relating to a surrogate parenting arrangement
  • Those relating to the adoption of your spouse’s child
  • Those reimbursed by your employer or any individual or organization
  • Those allowed as a credit or deduction under any provision of federal income tax law
  • Those paid before 1997
  • Those that violate state or federal law

The adoption tax credit is nonrefundable which means that only those individuals with tax liability (taxes owed) will benefit. Also, adoptive parents can take the credit even if a domestic adoption does not finalize.

As you can see, the laws involving adoption tax credits are complex, requiring the input of a knowledgeable tax attorney. Because adoption is sometimes more complicated for same-sex couples than it should be, the attorneys of O’Connell and Aronowitz are strongly supportive as well as compassionate. They can be reached by phone or by filling out a contact form on their website.

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