Income Tax Law Benefits For Adoptive Parents

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income tax law benefits for adoptive parents

An income tax credit for new adoptive parents was passed in the Adoption and Promotion Stability Act, part of the Small Business Job Protection Act of 1996. Parents who adopted from 1997 to December?31, 2001 may take a credit of $5,000 of fees spent. Or, if they have adopted a child with SPECIAL NEEDS from the United States, the credit may be a maximum of $6,000. This assumes the parents have a tax liability of at least $5,000. It is not clear if the credit will be extended after 2001.

The full tax credit is limited to individuals whose modified gross income is less than $75,000. Individuals whose modified gross income is from $75,000 to $115,000 may qualify for a partial tax credit. Families may also be eligible for adoption benefits from their employer and the tax credit does not preclude using such benefits. For example, if an employer offers a cash benefit of $3,000 and the adoption fees are a total of $10,000, then the adoptive parent may use the $3,000 and also take a tax credit of $5,000, since in this example the adoption expenses were more than the sum of $3,000 and $5,000. However, in another example, if the adoption expenses were much lower, for example, $5,000, then the employee could use the cash benefit from the employer of $3,000 and take a tax credit for only the $2,000 of additional fees that he or she had to pay.

The cash benefits for adoption provided by an employer, up to a maximum of $5,000, are excluded from income tax, in accordance with another tax law under IRC section 137. In addition, the adoption benefit provided to military members (which is $2,000, as of this writing) is also excluded from income tax.

Adopting families or families who adopted subsequent to January?1, 1997 should obtain an Adoption Taxpayer Identification number in lieu of a Social Security number for the child. This number will be needed to apply for the credit.

Stepparent adoptions and surrogate parent arrangements are not covered under this provision.

Families should contact the Internal Revenue Service and ask for Publication 968, "Tax Benefits for Adoption." Call the IRS at 800-829-3676. You can also go to the IRS Internet website. As of this writing, that address is http://www.irs.ustreas.gov


Sheila Foster and Cynthia Bolt-Lee, "Changes in Tax Law Benefit Adopting Parents," CPA Journal 67, no. 10 (October 1997): 52-55.

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