Two tax benefits are available to adoptive parents: the adoption credit and the adoption benefits exclusion.
If you paid adoption expenses in 2023, you might qualify for a credit of up to $15,950 for each child you adopted.
The credit amount depends on your income. The credit is reduced if your adjusted gross income (AGI) is more than $201,010. You can’t get the credit if you earn more than $241,010.
Adoption benefits exclusion
If your employer offers an adoption assistance program, you can exclude up to $15,950 from your income in 2023. The income limits apply to this tax benefit, too.
Your employer will report these benefits on your W-2, Box 12 and mark it with the code “T”. You can claim both the credit and the exclusion for expenses related to adopting a child. However, you can’t claim both for the same expenses.
You might receive both benefits if both of these are true:
- You’re adopting a child with special needs.
- You received benefits from your employer’s adoption assistance program.
In adoption cases, the state decides if the child is a special-needs child.
If you’re married filing separately, you can’t claim either of these benefits unless you meet all these requirements:
- You lived apart from your spouse in the last six months of 2023.
- Your eligible child lived in your home for more than half of 2023.
- You provided more than half the cost of maintaining your home.
Qualifying adoption expenses
Qualifying expenses include:
- Adoption fees
- Court costs
- Attorneys’ fees
- Travel expenses
- Other adoption costs
For your expenses to qualify for the credit or exclusion, both of these must apply:
- The adopted child must be under age 18 or disabled.
- You paid the expenses in 2023 and/or 2022.
Year you claim the credit
If the adopted child is a U.S. citizen or resident, the year you claim the credit will depend on:
- The year you pay the expenses
- When the adoption becomes final
You must consider the year you pay the expenses and the finality of the adoption. Follow these rules to claim the credit:
- If you pay the expenses in a year before the adoption becomes final, you can claim the credit in the year after the year of payment.
- If you pay the expenses in the year the adoption becomes final, you can claim the credit for that year.
- If you pay the expenses in a year after the adoption becomes final, you can claim the credit in the year you pay the expenses.
If the adopted child has special needs, you can claim the full amount of the credit and the exclusion. You can do this regardless of the actual amount of expenses incurred.
If the adopted child is from a foreign country, you might be able to claim the credit and / or exclusion. You can do so only if the adoption became final in 2023.
Claiming the credit
To report your adoption expenses and claim the adoption credit or exclusion:
- Use Form 8839: Qualified Adoption Expenses.
- Attach the appropriate records to the form.
The documentation will help you in case you need to refer to your records at a later date.
Finality of foreign adoptions
The IRS has safe harbors for the finality of foreign adoptions covered by the Hague Convention. They’re for children adopted on or after the Hague Convention took effect. They apply to children who both:
- Were habitually residents in a convention country
- Moved, or will move, to the United States
Prospective adoptive parents must also have filed Form I-800A: Application for Determination of Suitability to Adopt a Child from a Convention Country. The application must be both of these:
- From a Hague Convention country
- Filed with the Department of State on or after April 1, 2008
If you meet all the requirements, you can rely on the safe harbor when you claim the finality of the adoption.
The IRS usually won’t challenge the finality of foreign adoptions finalized in a Hague Convention country other than the United States. This is true in the tax year that either:
- The Hague Convention country enters a final decree of adoption
- The U.S. Secretary of State issues a Hague Adoption Certificate (IHAC)
When a foreign adoption is finalized in the United States, you shouldn’t face an IRS challenge. This is true if the child came to the country for adoption under a Hague Custody Certificate (IHCC). However, this only applies for the year that a state court enters a final decree of adoption.
To learn more, see Form 8839: Qualified Adoption Expenses at www.irs.gov.
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