Adoption Tax Credit 2020

How can you talk full advantage of the Adoption Tax Credit? What changes are important when filing for this credit for your 2020 taxes. We talk with Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit Specialist with Bill's Tax Service and Josh Kroll, the Adoption Subsidy Resource Center coordinator at the North American Council on Adoptable Children.

In this episode, we cover:

•  What is the Adoption Tax Credit for adoption being claimed on 2020 federal taxes $14,300
• It is a non-refundable tax credit. How to advocate for refundability.
• What is a “credit” and how does it differ from a deduction or some other form of tax savings?
•  If you get a tax refund every year, how would you use the Adoption Tax Credit?
•  If you don’t have any federal tax liability, should you still apply the credit to your federal income taxes? 
• What type of adoptions are included or excluded? Stepparent adoption? Embryo adoption? Same-sex partner second parent adoption? Unmarried heterosexual second parent adoption? Surrogacy?
• Can you get credit for each adoption you complete even if completed in the same year? What about adopting siblings at the same time?
• What is a Qualified Adoption Expense for purposes of the Adoption Tax Credit?
• When can you claim the Adoption Tax Credit?
  • Domestic Infant Adoption
  • International Adoption 
  • Re-adoption in the US for International Adoption
  • Foster Care Adoption
• Special Needs Adoption: How does the Adoption Tax Credit differ for adoptions from foster care?
• Special needs child for international adoption
• What income level is excluded from claiming the Adoption Tax Credit in 2020?
• How long can the credit be carried over?
• Will the Adoption Tax Credit offset self-employment tax or will it only offset income tax liability? 
• How does the Adoption Tax Credit work in conjunction with employer benefits?
• What type of documentation should you submit with your taxes? What type of documentation should you keep in your records?
• What should you do if you do not have your child’s social security number when you get ready to file your taxes? When should you consider using an Adoption Taxpayer Identification Number (ATIN #) or Individual Taxpayer Identification Number (ITIN #)?
• How does the Adoption Tax Credit work with kinship adoptions? What if the child never was involved with the foster care?
• What are the most common questions received about the Adoption Tax Credit?
• How to find a tax specialist knowledgeable on the Adoption Tax Credit?

This podcast is produced  by www.CreatingaFamily.org. We are a national non-profit with the mission to strengthen and inspire adoptive, foster & kinship parents and the professionals who support them. Creating a Family brings you the following trauma-informed, expert-based content:
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Transcript

Note:  This is an automatic transcription.  Please forgive the errors.

0:00  
Welcome, everyone to Creating a Family Talk about Adoption and Foster Care. You've been waiting for it all year and we are back with our annual adoption tax credit show. drumroll applause everything please. We are so pleased to have with us our they're actually I consider them my friends but they're also two of the leading adoption tax credit experts in the United States. We have Becky Wilmoth. She is an enrolled agent and adoption tax credit specialist at Bill's text service. And we also have Josh Kroll. He is the Adoption Subsidy Resource Center coordinator at the North American Council on Adoptable Children. Hey, Josh. And Becky. Welcome back. And thank you so much for coming back another year to talk with us about the adoption tax credit.

0:59  
Thanks for having us. Thank you.

1:02  
All right. So let's start with the big news. Okay, Josh, we'll start with you. What is what is changed? What is the adoption tax credit for the adoptions being claimed on 2020? federal taxes?

1:18  
The amount for 2020 is 14,300. So there's a cost of living adjustment. And that's, that's what the amount is for 2020.

1:29  
Okay. And it should say it's adjusted for the cost of living. So it goes up slightly. Every year, it has gone up slightly every year. All right, we always there was a very short time where this was a refundable tax credit. It is no longer refundable. We have to say that because it's interesting to me that it was such a short time that it was refundable, that it's it's that people keep remembering back, I guess once given a good thing. It's hard to. It's hard to forget. But it is non refundable, although there are there are organizations that are working on including we're helping and creating a family tax. We're working on making it a refundable tax credit. Again, Josh, if people wanted to get involved in helping to advocate for this becoming a refundable tax credit, what is the website, they should go to?

2:24  
adoption tax credit.org. Okay, and that's there's information with the new Congress, there isn't any current bills that are out there. They're still trying to do their start of session work. But there, once there are some bills introduced, they'll be listed there. There'll be information about how to advocate for making that refundable again.

2:46  
Okay, excellent. All right, Becky, what is a credit, a tax credit? And how does it differ from a deduction or some other form of savings on your taxes?

3:00  
Well, Dawn attacks tax credit is always more beneficial than a deduction. Because what a tax credit actually does, it is reduces the amount of your tax liability, which is what the IRS says your tax should be on your modified adjusted gross income. Now a the adoption tax credit child tax credit, things like that, once your tax has been determined on your tax return, those things help cover that tax liability. Specifically, the adoption tax credit is one of the biggest individual credits that there is on your federal return. Now, a deduction is like when you itemize your deductions, I realized fewer and fewer people can itemize now because of the standard deduction was was doubled. But if you're able to itemize your mortgage interest, real estate taxes, charitable contributions, those things, they actually lower your income. It still lowers your tax, but the tax credits actually help cover that tax liability, which means more of a refund for you. So the dislike itemizing your deductions that is a deduction that lowers your income. And the credit is what actually helps pay your tax liability that the IRS says you would owe on your modified adjusted gross income.

4:39  
I think there's sometimes a there's confusion because people say, Well, I get a refund every year so I don't pay you know, I'm not paying taxes. How do I how do I then utilize the adoption tax credit? Becky there there is a fundamental misunderstanding I believe with when it comes to how refunds work.

4:59  
Absolutely. And I hear that a lot also, you know, because somebody says, Well, I get a refund every year. So I don't have any tax, that's not true. The difference between your tax liability, and your withholding is what you get as a refund every year or what you owe. So say for an example, you had, you know, you with your adjusted gross modified adjusted gross income, you had $5,000 in tax liability, on line 16, on your federal return, but you had $10,000, in withholding. So the difference in that is 5000. I mean, that's not taking into consideration child tax credit, additional child tax credit and all of those things. But what what happens is, like I said, this, this, the simpler version of that, is that the difference between your tax liability, and your withholding is what you get as a refund.

5:58  
I think what a lot of people don't, they really, if they think it through, they would realize it, but I think what some people get confused is they, we most of us, the vast majority of us, withhold throughout the year, our we're paying our taxes throughout the year in the form of withholding. So we are actually we have a tax liability. We're just paying for it as we go along. And if we overpay we get a refund. Is that a succinct way of saying that, Becky?

6:25  
Excellent. Okay. And that's, and that's one of the things that, you know, that we work with, with a lot of families is because, because they know they have this credit, so they know their tax liability is going to be met, you know, for the next several years. So they can actually reduce their withholding get more on their paycheck, because their tax liability is going to be met. But you are 100% correct. You know, a lot of people don't realize, you know, that that was holding that you have, or if, you know, estimated payments that you may make instead of withholding. You know, those those things. It's IRS is a pay as you go kind of place. Yeah,

7:03  
it definitely is.

7:05  
But now there are legitimately people who don't who have very little federal tax liability for a variety of reasons. So Josh, if you are one of those people who actually does owe very little in federal taxes, should you still apply the credit to when you're filing your income tax?

7:25  
Return definitely encourage people to claim the credit, even if that won't help them that year. Because let's say we were successful in 2022 and making the adoption tax credit refundable. Well, if they would have to go back and amend to establish the credit, and that'd be more work, it's better to have it in place from the get go. I mean, that's also making a big assumption that if Congress does make it refundable, that the carry forward also, but I think there's a very high chance it would work out that way. So we encourage families to file for the credit, even if they can't use it at that time.

8:01  
Well, if they couldn't use it this year, on their, their their 2020 taxes that there'll be filing in April of 2021. What would happen if the following year for their 2021 taxes, which they would be filing in April of 2022? What would happen if they do what if they have federal liability, then? Could they apply the tax credit that they put on their tax return this year? Could they apply it next year?

8:30  
Yep. So the federal adoption tax credit when it's not refundable? A family has six years in which to try and use it up. So it's, you know, if they can't use any of it in year one, in year two, they can they'll have the full amount still available to them. So in this example, they have 14,300. And if they could use some of it up in 20 2021, taxes, year two, it would be available to them. So the folksy way I describe it is it's like making a big Thanksgiving meal. And you have the credit until either all the leftovers are used up. eaten up, or the leftovers go bad, which is after year six, in which case any unused credit just disappears. Gotcha. It also is helpful because Thanksgiving is National Adoption Month, you know, as in

9:19  
Oh, yeah. Yeah. See how you did that? Yeah, that was a good time. Yeah. Yeah. Got it. Okay. All right. So what type of adoptions are included are excluded Becky.

9:33  
All types of adoption qualify for the adoption tax credit except for the adoption of your spouse's child. stepparent adoption. The the details all depend what type of adoption it is, you know, what type of adoption it is, determines when to claim it, how to claim it. But absolutely all adoptions qualify, except for the spouses child adoption.

10:00  
Okay, well, let me ask you some though some of the one offs that we get questions about, what about embryo adoption, which is also known as embryo donation, but sometimes it is called embryo adoption. So what about that, Becky?

10:15  
The only statue that I have seen, there was two states that were trying to get it passed, if the actual embryo would would not be eligible for the adoption tax credit. The only way that I see it working would be if they did a re adoption after the child is born.

10:40  
Okay, which is not the usual case. All right. What about same sex partner second parent adoptions, which are only in some certain states, but what about that type of adoption?

10:53  
If if they are married or not married,

10:55  
let's say they're not married, because we already because that was they were married, they would fall under step step parent adoption, which would not be covered, Correct,

11:03  
correct. They're not. Yes. If they're not married, they would qualify for the adoption tax credit.

11:10  
Okay. It's kind of a backwards thing of discouraging marriage, but whatever. Okay, what about right? unmarried heterosexual second parent adoptions?

11:21  
are awful also.

11:23  
Okay, so it'd be the same thing. Okay. Yep. Yes. But

11:26  
the marriage is the barrier. Yeah.

11:28  
Yeah. Isn't that? Yeah. Okay. And we received this question. And it's an interesting one, and I think it's clearly the answer, but it's interesting that we received it, which is, what about surrogacy? Josh? The costs of surrogacy, which I will add are substantial. Could that be covered?

11:50  
Don't know, Becky probably knows more.

11:52  
Okay, Becky? No, it is not.

11:54  
Yeah. I mean, it doesn't even to me. I mean, surrogacy is not adoption. So it's an interesting one I can see. Yeah, I mean, I could see the creative use of wishing it were but it's a surrogacy is not adoption. Okay. All right. Josh, can you get the credit for each adoption you complete? Even if it's completed in the same year? So let's say you're, you know, you adopt two children? Or what about adopting siblings at the same time, it's that do you get just one credit on your taxes,

12:26  
you get a credit per child that you adopt. And if you adopt a sibling group, that's more than three, you'll need to fill out a second form 8839 for lines, one through 11, because the form 8839 only has spots for three children. And there are definitely some folks who think you can only get the credit for up to three children, because that's all the spots there are. But the instructions are very clear. But if it were two different children adopted two different times or more, they would all qualify.

13:00  
Okay. Their credit attaches to the child in essence, so it is not to the parents, it's to the child. So each child gets the credit. Okay. Yes. Okay, Becky, the the way that the tax code reads, you are eligible for qualified adoption expenses. So that raises a question of what is considered a qualified adoption expense for purposes of the adoption tax credit. Becky will let you start with that one.

13:32  
Sure. Thank you. According to IRS code, adoption, qualified adoption expenses, include any all costs directly relating to your adoption that are reasonable and necessary for your adoption. They have to be directly related to the adoption of eligible eligible child. That includes adoption fees, legal fees, court costs, traveling expenses, home study fees, dossiers? I mean, there's just so many things that encompass that anything that is necessary, the only thing that does not qualify his birth mother expenses, because it violates state and federal law.

14:20  
And well, even if it's allowed, even if what about some states have allowable birth parent expenses? Are those qualified adoption expenses?

14:32  
It would be my per state,

14:34  
per state. You know, what it usually comes down to it seems like is that there are so many adoption is expensive enough that there are so many. When I say that, let me just say that does not include adopting from foster care, which we're going to talk about in just a minute. But other forms of adoption are expensive enough that you don't need to look to birth parent expenses, usually in order to collect The cry or that just that's how it feels like me, okay? If you are adopting or fostering boy do I have a fantastic resource for you, five free creating a family post adoption or post fostering courses. The topics are spot on to the realities of parenting, and you can't beat the price free. foster parents can use these courses for their in service continuing education. Of course, check with your agency first. These courses are brought to you by the generous support of the jockey being Family Foundation, you can find them at Bitly slash j, b, f support bi T dot L y slash all cap, j, b, f, capital S view PP o rt jbf support, you apply the coupon code, JB f strong, all lowercase at checkout and the course each with a $20 value will end up in your cart as free. Enjoy. And thank you, Jackie being family for your support. All right now, another sticky wicket is when you can claim the adoption tax credit because it depends on the type of adoption. So Josh, let's turn to you. We'll give you the easy one. If there is such a thing, domestic infant adoption, when can you claim the adoption tax credit?

16:33  
That was actually the hardest of them? So

16:40  
the big bucks Josh? Yes. I

16:41  
know what you said it was the easy one. Just like just so listeners know, it's not the case. I mean, it's not hard. It's just it's the most complicated, the

16:51  
most complicated. Yes, it is.

16:53  
So the domestic private adoptions, you either claim the credit the year after you paid the expense if the adoption is not yet finalized, or the if it's finalized the year after you paid the expense or the year that you paid the expense if it's the year of finalization. So if I, if I paid if I started the adoption journey in 2019, and I paid an agency $3,000 for home study fees and got started then, and I still haven't even been matched with a family right now. Those $3,000 I paid in 2019, I can claim on my 2020 taxes, because they're the year after I paid the expenses, and the adoptions not yet finalized. Now, the tricky part for anybody in this situation is if you don't have the child, you don't have a taxpayer ID, you can e file this return, and you will have to pay per file it. It's not anything you're doing wrong. But it just the IRS does not allow the file to go through without that social or taxpayer ID.

17:57  
And the example you gave is a fairly realistic one, because it is probably the majority of domestic infant adoptions do not take place in one year. So it's very logical that you would incur expenses over a couple of years. But you can then take whatever expenses the year that you have incurred, you could take them on the following year's taxes. Correct. Okay, perfect. Well, now that we've gotten the

18:22  
easy one, just just to finish that up. So if I paid more expenses in 2020, and more expenses in 2021, and five and finalized in 2021, the 2020 and 2021. taxes, or expenses will all be claimed on my 2021. Texas. Gotcha. So just just to make sure we're covering the whole Yes. timeline, the whole timeline next semester.

18:47  
Yeah. Okay. We'll say she took the hard one. I'll give you that one of the easier ones. Let's talk now about international adoption. And I believe it may differ, whether we're talking about international adoptions from countries that are signatories to The Hague Treaty on adoption, which is the majority of them, or adoptions, international adoptions from countries that are not non Hague. So let's, Josh, what how what's the timing on claiming the adoption tax credit for international adoptions?

19:18  
For internationals, they have to be considered, they have to be finalized, that can be finalized in country or for flexibility. If you have to re adopt in the US it can be when you re adopt, but it can it's not like the private domestic where you can take it a year. You know, you can take it as you go along. And that was a real big struggle. When Russia closed. There are a lot of families that were in 30 $40,000 were matched, waiting to take the child home and they were out of luck because of how the rules work for international adoptions.

19:53  
So what is there a distinction between whether you're a Hague adoptee from a hay country versus a non Hague country

20:00  
I don't remember Becky

20:04  
calling me I fly in early if it is a non Hague country, you have to readopt once you get back in the United States, the Hague country, you get the certificate of citizenship, and it is recognized as final. But for a non Hague country re adoption is required.

20:22  
And let me just reiterate that, with the vast majority of adoptions, the adoption is finalized in the country of the child's birth before the child enters the United States. So if that, and there are a few countries where that is not the case, so the child comes is under a guardianship or some other parent child relationship, the child comes to the United States. And in order for the adoption to be finalized, it has to be finalized here in the US. So it is when it so let's take that scenario when the adoption is required to be finalized here in the US. When can you claim Becky, the adoption tax credit?

21:08  
When it's final here?

21:09  
Okay, so that is the year that you are able to claim, even if the child and usually there is a period of time that you have to wait, depending on state law.

21:18  
Correct. Okay.

21:19  
Okay. So what about? And I'll direct this to you, Becky, what about, there are a number of families, they have a foreign adoptions certificate they have adopted in another country, and they have it the adoption decree is there. But they choose just for a number of reasons, including just ease of translation and understanding to readopt. In the US, even though they have a finalized adoption decree, does that change anything there? Is there is usually a cost associated with the re adoption here in the US. So does that change anything as to when you can claim? And it can you claim your re adoption expenses?

22:02  
Well, what what happens is, if it's, of course, if it's a, you, you have the option of when to take the adoption tax credit, if you have that certificate of citizenship, and you, you can take it when it's final there. Or if you are going to readopt, you can choose to take those when the re adoption in the United States is final. And then you can combine all of those expenses together and take the re adoption expenses. You can't you can't do two separate transactions, basically. So you you need to make that decision. Do you want to file, you know, let's say it's a span over two different years, which is very possible, you know, if you if it was, you know, final in country in 2020. You know, you and but you know, you're going to readopt. So you have to make that decision, are you going to file it when it's for the year that it's final in country? Or are you going to wait and file it? You know, whenever it's final here in the United States, you do have that option. So I mean, that that can be a great benefit. Especially if your income is different. Yeah. So it's a tie. It's all about the timing. Yeah. Right. Because your income, your income may be higher or lower. Yeah. You know, so if you're, you know, you're going to adopt and you're in, you know, if say, say you're over the threshold, the income threshold for the adoption tax credit, you could wait till it's final, combine them all, and then qualify for, you know, because your income is lower.

23:39  
Okay. That's Yeah, that makes really good sense. It's, it's, and the reality is, of course, that for international adoption, your expenses are going to far exceed how much that that tax credit for this year is 14,300. There are no international adoptions for the most part. Well, I shouldn't say no, but it would be very unusual to get an international adoption for that amount. So you're going to have your expenses are going to far exceed what the credit is. So then you can just look at timing and decide which is most beneficial from your standpoint.

24:11  
Right. And, and the other benefit of that is is the income exclusion, if they have a qualified adoption benefit, because international adoption is so expensive, you know, if they have a qualified adoption benefit with their employer, or if they don't get they could get their employer to, and then they could exclude that 14 300 and then take 14 300 if, let's say their expenses, qualified or expenses are 30,000, they would qualify for both kind of exclusion and the adoption tax credit.

24:46  
Okay, that makes sense. All right, and the final type of adoption that we haven't talked about, and is adopting from foster care. So Josh, when can you claim the adoption tax credit when adopt Adopting from foster care.

25:02  
Foster Care is a domestic adoption. And if for some rare reason you had qualified adoption expenses, it would work like a private domestic. But if you don't have expenses, because the child's considered special needs by the state has been determined special needs by the state, it's the year that you finalize the adoption.

25:22  
Okay. All right. Well, that leads us directly into the discussion of special needs adoption. So how does the adoption tax credit differ for adoptions from foster care, Josh

25:38  
can apply to some adoptions outside of foster care. So we want to make that clear. But typically, this is just for adoptions from foster care. And families adopting kids from foster care typically don't have any or very little expenses. And if the child is determined by the state to be special needs, which basically means the child gets an adoption assistance agreement or adoption subsidy agreement or for those Washington State folks adoption support agreement, then it's considered special needs. And the family can claim the full amount of the credit, even if they didn't pay any qualified adoption expenses.

26:18  
Okay. And and you said that said the important point here is that if you have a subsidy agreement, depending on what it's called in your state, that is that is what the IRS uses to determine whether the child qualifies as special needs. Is that correct?

26:37  
That is correct. There was a case a few years ago where a child was adopted privately and met the state definition a special needs but wasn't determined by the state to be special needs. And they actually lost in Tax Court for that that family claiming the child has special needs. So the key part is the state has entered into an agreement. That is what the IRS is looking for. And there are cases where kids are adopted privately, whether a re adoption or child with significant disabilities that's eligible for SSI, that can qualify as special needs also, but the the key factor for the IRS to be special needs is that adoption assistance adoption subsidy agreement. So what should a family do? Who is adopting a child with clearly the child clearly has special needs, and there but they are not. They're adopting this child not through foster care? Is there anything proactive that they could do to try to be able to get the special needs benefits from adopting this child? If it's the first adoption, they'll have to apply for SSI, for that child, if they get SSI, then they apply for adoption assistance in their state of residence, even if the child was born in another state. And then they can't finalize until you know, they have the SSI, which they then use to apply for the adoption assistance. And then they want to get that in place before they finalize the adoption.

28:12  
And SSI, just for those who don't know, stands supplemental

28:15  
security income. Gotcha. So that would be a call to the Social Security Administration to make that determination.

28:23  
Bottom line is if you are adopting a child outside of foster care that clearly has special needs, you need to consult with your tax specialists beforehand, to find out what you need to do if this $14,300 is an important factor for you.

28:46  
I would actually say they should probably contact our office to help guide them through the steps to do the adoption assistance because the adoption assistance is actually a bigger long term benefit and comes with Medicaid, which is sometimes the most crucial part. Yes, these families are looking for.

29:04  
And how Josh, would they contact her office?

29:07  
Didn't go to our website nasdaq.org and a cac.org. Or call 800-470-6665. Extension 115.

29:21  
Yeah, it's a tremendous resource. We get it out all the time. So yes, thank you for what you do on that one.

29:28  
Okay.

29:28  
Becky, what about special needs kids for international adoption because many of the kids coming through international adoption do have special needs.

29:39  
Unfortunately, what the IRS considers special needs and what you and I consider special needs is two different things. What the IRS considers special needs is hard to place and each state has a different criteria as to what qualifies a child as special needs. But as As far as international adoption, no international adoption is considered special needs for IRS purposes.

30:08  
Alright, and you had alluded to this next question a little earlier. And that is, there is an income level of which if you are above, you are excluded from claiming the adoption tax credit. What is that level Becky in 2020?

30:29  
For 2020, the phase out range starts at 214,520. And it completely cuts you off of eligibility at 254,520. And what happens is when you are in between that income bracket range is cut off in increments of what you are eligible for. But if as long as your modified adjusted gross income is under the 214,005 20, you should I mean, if you have the qualified expenses and everything, you should qualify for the full amount, and every year, it goes up a couple $1,000. For 2021. It's 216,660, up to 256,660. So, I mean, it's a pretty broad range, you know, generally $40,000 is the income phase out range. And like you said, like I said, I, it cuts off in increments of the part that you're eligible for when you are in that income phase that range and then when you are at the for 2020, the 254, or 520 is the cutoff that you do not qualify at all.

31:48  
Okay, another question we often get is how the adoption tax credit can be used with self employment taxes. Becky, why don't you take that one.

32:00  
At this time, since the adoption tax credit is non refundable, there is some things that it does not cover. And unfortunately, one of those is self employment tax. The adoption tax credit can and will still cover your actual federal tax liability. But it does not cover your self employment tax. It doesn't cover first time homebuyer payback. And it does not cover the 10% penalty for early retirement distribution. But with this year there with COVID-19. And everything. There are exceptions for the distribution, if you took a retirement distribution this year, because of COVID-19, you know, if you were affected by COVID. Anyway, you can in 2020, you could take that distribution, and there won't be a 10% penalty. And then there's also an a distribution benefit now called cue Bode, which we can talk about that later. But unfortunately, it doesn't cover self employment tax.

33:09  
Okay, well, let's go ahead and talk about cubot. Now, let's go ahead and introduce that concept right now. Because that's something that may impact people filing this year.

33:19  
Absolutely. Cube mode is actually qualified birth or adoption distribution. It's an additional adoption benefit and birth benefit as well. That was came into whenever the secure Act was signed. It this this is an exception, that a qualified birth or adoption distribution from any eligible retirement plan up to $5,000. Without the 10% penalty, if you're under 59 and a half. The Kubota is limited to 1000 per individual, not per family. It's per individual for each birth or adoption. So wife could take out the 5000 husband could take out the 5000 and it's for each birth or each adoption. And this is just a fabulous added benefit. Because we've all seen times where people you know, have taken money out of their retirement to help fund their adoption. And you know, they got hit with that 10% penalty because they're under 59 and a half. So this is this is a huge huge benefit for adoption families and for and for birth families.

34:37  
For families because it's it's not it is treating a child by birth and a child by adoption the same.

34:43  
Correct.

34:45  
Okay, excellent. Anything else that is different this year? Because this is 2020 has been such a well let's be honest, weird year. Is there anything else different Becky? as to how it was? might work with the people who are adopting or fostering.

35:05  
And the The main thing is, of course, is is is Kubota. One of the biggest issues I have seen this year, and I do hundreds, you know of adoption tax credit returns every year, the biggest issue, of course, has been being able to get social security numbers. And, you know, it's, you know, you you can you can apply for an A 10, if you're not able to get social security number for one reason, or if you're not eligible, the only issue is, is if you get that 810, and you actually qualify for social security number, you are going to lose out on quite a bit of credit, because within a 10, you cannot claim child tax credit. You can only claim adoption benefits and Dependent Care Benefit. With a social security number, of course, you can claim the child tax credit the additional child tax credit, with the 18. If you claim the other dependent credit, that's only $500.

36:05  
Let me just say a tip when she says a 10. what she means is I'm going to just define what that acronym is adoption, Taxpayer Identification Number, hence, a 10. Now, go ahead, I interrupted, I just wanted to make sure people knew what that was.

36:19  
Oh, no, absolutely. Thank you. I appreciate that. So, and then, so some of the things, you know, some of the pointers, you know, with the IRS is now nine months behind, on all paperwork, just so with that being said, it's better to wait for the social security number, and then wait until he file opens back up in the end of January, rather than, you know, trying to send in your return paper, you know, because they are nine months behind. And the biggest issue is, is that child tax credit versus the other dependent credit. You know, that's 15 $100 difference. And for, you know, most adoptive families that 15 $100 makes a huge difference.

37:09  
Oh, yeah, absolutely. Is there a possibility that the you could file late? I mean, would it make sense to get an extension to file late to allow the IRS to catch up? Or what do you recommend on that? Absolutely.

37:25  
Okay. Yes, absolutely. Absolutely.

37:30  
Fascinating. All right. Yeah, the gift of 2020 just keeps on giving right? The weirdness of 2020. keeps on going. All right. Let's talk now about the minute not many, I should say. But some people are fortunate enough to work for a company who provides benefits to their employers who adopt? How is that handle Josh? And can you take the same expenses immediately? Is that considered double dipping? You've got benefits from your employer, and you've got the adoption tax credit, how do they work together?

38:09  
What would happen is they would file for an exclusion on that same form, but they can't use the same expenses to apply to the exclusion and the tax credit. So like, let's go back here example. Let's say if as adoptee maybe internationally, they have 30,000 in adoption, qualified adoption expenses, they got 5000 from their employer, they would exclude the 5000 from the employer, and then they would have remaining 25,000 in expenses to claim the adoption tax credit, which is only 14,300 for 2020. And they wouldn't there wouldn't be any double dipping there. The only time you'd run into double dipping is if the total costs were more than the amount of the credit plus the amount they got in benefits.

38:58  
Okay, got it. So usually, not that has happened.

39:01  
It can happen more for private domestic, I would assume.

39:05  
Mm hmm.

39:06  
Yeah.

39:08  
Okay. So, Becky, what type of documentation to you as a tax preparer that specializes in the adoption tax credit? What type of documentation Do you want your families to submit? To you? And then because are what type of documentation will they need to submit to the IRS in order to prove that they have these expenses? And what types of they keep in their records? And just in case they were to get audited?

39:38  
Absolutely. I always recommend to everyone that they need to get a big envelope, mark it IRS documentation. Because in right now, since the form 8839 can be electronically filed, you no longer have to send the documentation in when you file your return. However, if you receive a letter from the IRS requesting more documentation, don't panic. I know that's easy to do when you say easier said

40:09  
than Barris. Yeah, yeah,

40:11  
it is it is very much so. But there's for a foster adoption, I'm going to start with it. For a foster care adoption, you will need a copy of the signed and dated subsidy agreement. Now, Josh was talking earlier. And one thing that I really want everyone to realize, some subsidy agreements don't come with the money. Some subsidy agreements just come may with medical. So there does not have to be $1 amount on the subsidy agreement. But you have to have that subsidy agreement with the state. And, and so for foster care adoptions, they need the final judgment of adoption, and the sign in dated copy of the subsidy agreement. And all of these formal documents have to be signed and dated. The IRS does not want a preliminary copy, nobody signed and nobody's dated. However, don't ever send the original. If they request documentation, make sure and get a good copy. Now for private domestic adoptions, of course, you will need the final judgment of adoption and different different places call it different things decree of adoption, certificate of adoption, but it's basically the final judgment that says this adoption is final. And then they will need a copy of signed and dated copy of their home study. And then they will need proof of all of their adoption, qualified expenses. That's for domestic and for international,

41:46  
but what qualifies for proof of payment,

41:49  
what qualifies as proof, we have used credit card statements in the past, we've used copies of checks, you know, all of those receipts, particularly whenever you're traveling, you know, internationally that can be quite expensive. You know, so those those travel expenses, receipts, all of those, you know, you need to keep those in a good envelope. And something else too, if you're if you're adopting internationally. When you get back, you need to make sure you have make good copies of those receipts, because receipts fade very quickly. And so I mean, it may be I've seen it a year or two down the road, that they've got a carry forward, the adoption wasn't even final that year. They they're using a carry forward and the IRS requests documentation. So you know, make sure you you have that envelope, and you have that all and you have it all in that envelope. That way, you're not scrambling, you know, for documentation. If you get that letter from the IRS,

42:55  
yes, Becky, but if the like the little like I've had people ask me, you know, like, Oh, this receipt from this restaurant in China is faded. But if they if they've got, like the big dollar amounts to get them over what they need for tax credit and exclusion, they shouldn't sweat those small things. Right?

43:14  
Absolutely. You're right. Because you're for especially for international, you know, it's most of the time, you're going to go way over exactly the amount of the credit and the income exclusion. Oh, you know, don't don't sweat those little things. Start with the big receipts.

43:32  
And you're likely made sure that the full amount of the adoption tracks candidate just with the that the your big expenses that are going to be easy to document.

43:42  
Correct.

43:44  
Okay, on

43:46  
this show, as well as all the many resources provided by creating a family and our website, creating a family.org could not and would not happen without the generous support of our partners, who not only believe in our mission of providing unbiased education and support to pre and post adoptive Foster and kinship families. But they believe in that mission so much that they're willing to put their money where their mouth is. One such partner is VISTA Del Mar. They are a licensed nonprofit adoption agency with over 65 years of experience helping to create families. They offer home study only services as well as full service, infant adoption, international adoption, home studies, and post adoption and foster to adopt programs. You can find them and get more information about them at VISTA del mar.org. All right, perfect. Let me back up. And just one I want to touch on one thing that you just raised when we were talking, I'm going back to talking about the special needs adoption. You're adopting from foster care, Josh, it does happen that you're adopting a child. Often this happens when you're adopting an infant And the child does not have quality. The child has not appeared at that point at the time you're adopting to have special needs for which the state is going to be willing to pay an adoption subsidy. But as an adoptive parent, you know that let's say, let's give an example that the child had been prenatally exposed to alcohol or drugs are no prenatal care or whatever, so that you anticipate that there could be needs down the line. What should you do both in terms of with that type of what type of subsidy agreement Do you have, when at this point, they're not going to be willing to have $1 amount, but from the standpoint of adoption tax credit, what does that adoption subsidy agreement need to include? Or is it a moot point? Because almost always, it's going to include Medicaid? And that would be enough.

45:54  
It's not always in a cover mount is a great question. And Becky did a great job of clarifying on this issue. So it's going to depend on the state there's probably half two, maybe two thirds of the state have what's called different things because their states differ doormat high risk. And so like my state, and your state of North Carolina, have a situation where if the child's at high risk, they'll enter into a $0 agreement and provide the Medicaid and the reimbursement of non recurring adoption expenses. There's three parts to the adoption subsidy agreement. Typically, for every state, there's the monthly payment, the Medicaid, and the reimbursement of non recurrent adoption expenses. As long as agreement has one of those things, the IRS is golden, there are some states where that wouldn't be available. Becky's in Illinois, they don't have that, but it can get over one is considered special needs in Illinois, hard to place. So they would be most of the kids in Illinois are eligible because they're one or older. But like in Texas, they don't have the high risk. And that h2 for children of color, age six for white children, sibling groups have any age qualify. So it's going to depend on the state. But if you have an agreement, and adoption assistance agreement that provides one of those three things, that is good enough. And going back to what I said earlier, for the private adoptions where the child has a disability, it would call me because that's something that I can help know what the state's qualifications are, and help a family make that case if they're not being presented with it. There are some states that if you had a really young child, they might not even provide the Medicaid, but if they provide the nonrecurring, that will be enough to

47:43  
Okay, excellent, thank you. All right, because I think that is really important, particularly

47:48  
extremely important. Yeah, yes, it is. It goes young, you know, if you're not getting that dollar support, that adoption, tax credit can help with some of those expenses, especially for a youngster who might have might still be in diapers or paying for childcare.

48:03  
Yeah, and this is not just about the money, this, hopefully the money is going to be used to help you better parent and provide services that this child might need, either, even if it's not in this year, but in the future. All right, we've talked to some about an issue that does come up. And it's going to be handled, it sounds like from what Becky is saying differently this year. And that is, you when you get ready to file your taxes, you have yet to receive your social security number. And I think we have this year in the past you were able to use your adoption tag here. A Tim adoption Taxpayer Identification Number, but from what you were saying, Becky, what we should do this year, is make certain to file for an extension and wait until the IRS gets you the social security number. I just want to reiterate that is that correct?

48:51  
Absolutely.

48:53  
It's actually been for a couple of years that I've tried to put in place.

48:57  
Right. This is not a new issue, that the biggest issue this year has been being able to get the social security number because it's everything was shut down.

49:08  
Yeah. So it's they're still running behind. Yes, I understand. Yep. And it's actually the Social Security Administration that issues the social security numbers, not the IRS.

49:16  
Okay, so right. So it's the Social Security that's behind, so we're not getting our it's even further behind. Okay, got it. Yeah. Okay. Josh, let's talk a moment about kinship adoptions and how it would kinship adoptions, which grandparents, aunts, uncles adopting, or even siblings adopting a child. Does that fall under the domestic private infant or domestic private adoption that we talked about before? Or is there something different and doesn't matter whether the kinship the child has been in the foster care system or not?

49:57  
Yes, it does. So if it's what they call Informal kinship where Child Welfare isn't involved, they may have gotten custody, they may have interrupted, you know, intercept the child, the child never went into care. They're going to be doing the adoption process and accessing the adoption tax credit, like a private domestic adoption. If the child entered into the public foster care system, and the family gets adoption subsidy, it's going to be like a foster care adoption. Being a relative does not unless you're marrying a lesser adopting your spouse's child, being a relative does not disqualify from accessing it. The route platform will be like foster care tin formal, no child welfare involvement, it will be that route,

50:42  
private domestic route. Okay, just as a regular private domestic adoption. Got it. I wanted to end by asking each of you, what are the most common question or questions you have received? Are you generally received about the adoption tax credit? Becky, we'll start with you.

51:04  
The, there's two, in particular, the first one that I received the most is what qualifies for an adoption expense. And the second is, when can I claim it? Those those are two of the biggest questions. Because, in in, in general, as a as a whole, you know, it's pretty most of the time, it's pretty clear cut what type of adoption it is. So it's just you know, when when can I claim it? And what qualifies.

51:38  
Okay, Josh, what about you?

51:41  
With what I do, because I'm not doing taxes, so people are usually needing a different sort of, for me, the biggest thing I get is people come? Well, the first one is, do I need to get someone special to do this credit, grand. And, you know, obviously, Becky is phenomenal. And folks should not hesitate to use Becky and Bill's Tax Service at all. But the reality is, it's not super complicated. If people are already doing their taxes they can. Or if they're using someone that is a specialty in a other part of their life, like a couple years ago, I talked to a Colorado family that, you know, are ranchers. Like, see if the rancher can learn up on this, don't leave them learn up on this, because like, there's only 80 or 90,000, maybe 100,000 of these filed a year, there's not that many. So see if you can educate up and stay with the specialists you're already using for your tax needs. The other biggest complaint I have is sort of a complaint. And it does tie into that is, you know, my tax preparer says I can I can't get this credit because I don't have expenses. And you know, they have adoption subsidy. That's, you know, it's always a frustration, because it's Yeah, I get it tax people are busy. There aren't a lot of these, but it is in the instructions. So

53:06  
yeah, absolutely. And I tell people all the time, if, if you're if your person says that you don't qualify find someone else. Yep.

53:16  
Yeah, I can't tell you their

53:18  
tax service.

53:20  
Well, I we get, I can't tell you the number of tax preparers who listened to this and and listen to this interview and are getting their information here. So you're providing a a service? I would say that it is I think it is intimidating for a lot of tax preparers. So I sometimes think of specialists does help it just in the

53:46  
fact that I helped them I helped other tax preparers all over the United States. So you know, I take phone calls all the time from him, because because they, you know, they have dealt with it or they you know, they don't understand, you know, the, you know, the after effects of dealing with the IRS and, and all of those things. That's that's part of what Josh and I do. Is is the is the after effects of some of these things. So, you know, definitely it's there's nothing wrong with asking questions. Yeah. The person who does your return, you know, if they are not if they're not versed in it or are willing to, you know, like I said, find someone else

54:27  
for foster care adoptions. folks got. People have to educate their folks up if they don't know that they can get this without expenses. I mean, don't just say, Oh, well, Josh was wrong. Becky was wrong. You know, you know, my tax person said this, you need to self advocate or shop around. Absolutely.

54:50  
Yeah, very much. So.

54:52  
I've amended a lot of returns because of that.

54:55  
And amending of return is a bigger hassle than doing it right the first time. So do Right The first one, amen. It's also more costly. Josh, will you give us Josh crow with the North American Council on adoptable children? Will you give us your contact information for those who are adopting a special needs child in particular? He can truly help you, Joshua, you give us your contact information one more time.

55:20  
It's our website is www.nacac.org. My email is Josh KJSHK at and acac.org. And my phone number is 800-470-6665. Extension. 115.

55:44  
Becky, Becky wilmoth. Will you please tell us how people could reach out to you if they wanted to?

55:50  
Absolutely. And you can go to our website www dot bill, tax service.com. My email is Becky B EC ky. At Bill's b i ll s TAX, the number two.com. Or you can call us at our 800 number 188870 or 61853272 to three.

56:23  
Thank you, Josh Crowell and Becky Wilma for being with us to talk about the adoption tax credit. Let me remind everybody that the views expressed in this show are those of the guests and do not necessarily reflect the position of creating a family. Our partners are our underwriters. Also, keep in mind that the information given in this interview is general advice to understand how it applies to your specific situation, you need to work with your adoption, foster care or tax professional. As you know, the mission of creating a family is to provide unbiased, accurate information to help you create the family you've always wanted. And this podcast, the one you're listening to right now is the prime way we accomplish this mission. Please tell others about this podcast so that we can help more people. You have so many options for letting the world know social media posting about an episode you liked or texting a friend that you think would benefit from this show. sharing it with someone in person or Heck, you could even call someone on the phone and tell them we would appreciate your help however you decide to do it. Thank you so much. Take care everyone. Thanks for being here and I will see everyone next week.

Transcribed by https://otter.ai