Adoption Tax Credit 2024

If you are adopting or have adopted within the last several years you should join our conversation today about claiming the Adoption Tax Credit for 2024. Our guests will be 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 Families Rising.

In this episode, we cover:

• What is the Adoption Tax Credit for adoption being claimed on 2024 federal taxes? 
• What is a “credit,” and how does it differ from a deduction or tax savings?
• How would you use the Adoption Tax Credit if you get a tax refund every year?
• Should you still apply the credit to your federal income taxes if you don't have any federal tax liability?
• What types of adoptions are included or excluded? 
• Are kinship adoptions covered? Are kinship guardianship arrangements covered? What if the child never was involved with the foster care system?
• 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 2024?
• When can you claim the Adoption Tax Credit?
• Special Needs Adoption: 
  • How does the Adoption Tax Credit differ for adoptions from foster care? What does the IRS accept as proof of “special needs”?
  • What is a $0 subsidy agreement?
  • Special needs child for international adoption
• Can you reclaim your expenses for an attempted adoption that did not result in a placement (failed adoption)? How?
• What income level (Modified Adjusted Gross Income) is excluded?
• How long can the credit be carried over?
• What if you didn’t claim the Adoption Tax Credit when eligible? Is the Adoption Tax Credit something you can amend your tax return for, and if so, how do you amend it, and how many years back?
• Will the Adoption Tax Credit offset self-employment tax?
• How does the Secure Act impact claiming the Adoption Tax Credit for 2024 taxes? 
• What should you do if the child’s Social Security Number is unavailable when you file? Should you use an Adoption Taxpayer Identification Number (ATIN #) if you don’t have the child’s social security number?
• How does the Adoption Tax Credit work in conjunction with employee adoption benefits? For special needs adoption?
• If you adopt, can you still get the Child Tax Credit?
• What do you need to get the Child Tax Credit for your adopted child?
• Do you need to send any documentation to the IRS when you file your taxes? What type of documentation should you keep in your records?
• How do you find a tax specialist knowledgeable about Adoption Tax Credit? 
• The Adoption Tax Credit used to be a refundable credit. Do you think the new administration will impact the refundability legislation? 
• Advocate for refundability 

Transcript

Please pardon any errors, this is an automated transcript.
Dawn Davenport  0:00  
Welcome everyone to Creating a Family. Talk about foster, adoptive and kinship care. I'm Dawn Davenport, the host of this show, as well as the director of a nonprofit creating a family.org. Today we're going to be talking about the adoption tax credit for adoptions in 2024 we'll be talking with Becky Wilmoth. She is an enrolled agent and Adoption Tax Credit Specialist with Bills Tax Service. We'll also be talking with Josh Kroll. He is the Adoption Subsidy Resource Center Coordinator at Families Rising, formerly known as the North American Council on Adoptable Children. Welcome Becky and Josh, welcome back to Creating a Family. Thank you. Thank you, Dawn All right, we're going to jump in. Let's start with the basic what is the adoption tax credit for adoptions being claimed for your 2024 federal taxes. Josh will give you that one for

Josh Kroll  0:58  
2024 the maximum amount of the tax credit and the exclusion that is available per child is $16,810

Dawn Davenport  1:09  
All right, just to make sure, because there is so much confusion on the difference between a credit and a deduction or some other form of of tax savings. So Becky, what is a credit and how does it differ from a deduction?

Becky Wilmoth  1:27  
A credit actually helps cover your tax liability, which is what the IRS says that the tax that you owe on your taxable income and a deduction actually lowers your taxable income. For instance, if you itemize your deductions, mortgage interest, real estate taxes, charitable contributions, those are considered deductions. It lowers your taxable income, which it does, in in effect, lower your tax but the actual tax credit is what actually helps cover your tax liability. So a credit is always better than a deduction. Yeah.

Dawn Davenport  2:09  
Bottom line is, you would, if you have a choice, you would prefer a credit over a deduction. Absolutely. Another source of confusion is people will say, Well, I get a refund every year, so I don't pay federal taxes. Josh, how does that work? So

Josh Kroll  2:24  
if you think about, especially if you have any sort of accounting background, what you get as a result when you file your taxes is the end result of the ledger. What do you owe in taxes? What are your payments? You know, that's all the math that's being done on your tax returns, so you could still owe some federal income tax, but have more in payments than you had in taxes, total taxes that you owed. So you get a refund, this credit, potentially, depending on what type of taxes that are, could increase the size of your refund. So just because you get a refund, you should never think, oh, this credit won't help me. There are families that will be the case, but you should not start out believing that, because we don't want you to miss out on this benefit that likely will help you. A

Dawn Davenport  3:15  
refund just means you've overpaid your tax. You've already been paying your taxes, and you, as you pay your taxes monthly, it's banking up in the an account. So in essence, they're totally unrelated and Becky. Am I understanding that correctly? Right?

Becky Wilmoth  3:31  
The difference between your tax liability and your withholding is what you get back every year as a refund, as you said, you basically overpaid, so they're returning the difference or what you owe because you didn't pay enough in but just because you get a refund, no, does not mean that you don't have tax liability, right? That's where I think the confusion is, it is. And we hear that a lot, and I know Josh hears it a lot as well. And what I do, I always have clients, okay, let's, you know when someone calls or asks question, let's, let's look at your last year's tax return. Go to line 16. What was your tax you know? Or if you had children, what is the tax on line 22 after the child tax credit. That will help give you an idea of how much the adoption tax credit will actually help you, just simply because you get a refund doesn't mean that you don't have tax.

Dawn Davenport  4:24  
Gotcha, so a credit reduces the amount of federal income tax that you owe. But what if you're a person who doesn't have any federal tax because of what you earn and because of other things in your life and that you other deductions you could take. You don't pay any tax liability. So Josh, should you still apply for the adoption tax credit if you're eligible for it?

Josh Kroll  4:49  
I would always strongly encourage people to do that, because families have six years in which to use it, and it's easier to have it in the system than to go back and. Amend your situation might change. You might make more money. That's the most likely thing, or Congress may change the law. There's big efforts. There have been for a long time, but hopefully next year, there'll be a big tax package, and we can slot in making the adoption tax credit refundable again. And if that were to happen. Having no tax liability would not be relevant, as the bills have been proposed so far. Don't know what the bill or final legislation will look like, but if Congress were to make it refundable in 2025 it'd be better to have it already claimed in 2024 and be able to use all of it in 2025

Dawn Davenport  5:42  
So Becky, what type of adoptions are included or excluded? For you to be able to claim the adoption tax credit,

Becky Wilmoth  5:50  
all adoptions qualify for the adoption tax credit, except for the adoption of your spouse's child, which is basically a step parent adoption, it does not qualify, and then embryo adoptions still do not qualify. But other than those two, all adoption qualifies. It's just the differences in the details of when to take it, how to take it, and what qualifies for the adoption tax credit. But the most prevalent one is the step parent adoption does not qualify.

Dawn Davenport  6:23  
What about same sex partners, second parent adoptions,

Becky Wilmoth  6:27  
as long as they're not married, gotcha.

Dawn Davenport  6:29  
So if they're married, then it falls under the step parent adoption, which is not covered. And even if you are an unmarried heterosexual couple, a second parent adoption would be covered, yes, and surrogacy is not covered. No, it is not okay. Josh, what about kinship adoptions where a grandparent or an aunt or an uncle are adopting a child,

Josh Kroll  6:54  
they qualify. They're not adopting the step you know, their their spouse's child, so it would qualify. The prior family relationship is not disqualifying.

Dawn Davenport  7:04  
What about if they don't adopt but they seek guardianship? Is it covered?

Josh Kroll  7:08  
It's not a guardianship credit, it's an adoption credit. So they do have to adopt? Yes,

Dawn Davenport  7:13  
okay, Josh, can you get the credit for each adoption you complete, even if it was completed in the same year? So you are doing two separate adoptions that are completed in the same year. Can you claim both? Yep,

Josh Kroll  7:26  
you can claim both. You claim it for every adopt. I mean, we will talk a little more about timing later, but each child you can claim whether they're the same adoption for, like a sibling group, or they're separate adoptions, and if it's more than three children in a year, you just fill out extra forms. You know, in the software you do it. Sometimes families or tax prepares in the past have said, Oh, I can only do two or now a days three, because there's only spots for that many kids on the form. And the instructions are very clear. You just add additional forms for lines one through 11, if you have more than three kids, and that includes

Dawn Davenport  8:03  
siblings as well, correct?

Unknown Speaker  8:05  
Yeah, yeah, gotcha. Okay.

Dawn Davenport  8:09  
Let me pause here to remind you that we need you to submit your questions for our weekend wisdom. Weekend wisdom podcast is where we answer one question every week in about five or so minutes. So please send us your questions and we will answer them on air. You can send it via email to info at creating a family.org or you can click the link on the show notes. Now, back to the show. So Becky, what is the qualified what is a qualified adoption expense for the purposes of claiming the adoption tax credit in 2024

Becky Wilmoth  8:46  
per IRS regulations, any all reasonable and necessary adoption expenses that can be court fees, agency fees, travel costs, if it's international, you're talking transportation, and even even if it's domestic, you're also talking travel expenses. The only expense that does not qualify is birth mother expenses, and the reason is, is because it violates state and federal law to deduct personal living expenses of someone on a tax return. So really, anything that is necessary for the adoption qualifies as an adoption expense. And the IRS, they want to know what's paid. So that's why you know. If you get a list from your agency showing when it was paid and how it was paid, that's a huge help up front in case you ever need it.

Dawn Davenport  9:41  
And the truth is you don't really need to try to claim. Well, you can't claim expected parent expenses, but there's going to be plenty enough qualified expenses that you don't need to start looking for additional expenses for any domestic infant or international adoption. Yeah. Yes,

Becky Wilmoth  10:00  
I always tell clients, you know, start with the big stuff. And once you meet the maximum for the credit or if you you know, have the income exclusion possibility with your employer, then you know, you may need to dig a little deeper, but start with the big stuff. And usually that's sufficient for what you need. You

Dawn Davenport  10:18  
know, going back Josh to the kinship adoption. Does it matter if the child was never involved with the child welfare system? Grandparents stepped in before Child Welfare stepped in. Grandparents took the child home. Grandparents were raising the child. Eventually the parents either agreed, or somehow the parental rights were terminated. Grandparents are adopting. Does that make any difference? It

Josh Kroll  10:42  
doesn't really make a difference in eligibility. The big difference is going to be, are they just solely looking at qualified adoption expenses, or if they're adopted through the system, they might qualify as special needs, and they may not have expenses, but may qualify for the full amount if they get adoption assistance.

Dawn Davenport  11:02  
Okay, let's move into that, because we're gonna now start talking about special needs adoptions. So Josh, how does the adoption tracks credit differ for adoptions from foster care, and what does the IRS accept as proof of special needs? So let's start with just talking about adoptions from foster care and how that is different.

Josh Kroll  11:23  
So the big difference, and you already sort of talked about this with talking about the large amount of expenses for private domestic infant adoption and international adoption, often adoptions from foster care have very little in the way of out of pocket expenses for the adoptive family. And so since 2003 if the child is determined special needs by the state, they will qualify for the full amount of the credit, regardless of what they paid out of pocket. And to qualify a special needs, they need to have an adoption assistance agreement with the state or county, and in some states, it's County, but they need to have an adoption assistance agreement, and it needs to provide either a monthly payment Medicaid or reimbursement of non recurring adoption expenses. There are some states where families have to get an attorney, and they all magically cost the up to $2,000 that the state will reimburse them for, if they have an agreement that reimburses them for that, or does even direct payment to the attorneys, which some states do, that would qualify them as special needs for the purpose of the IRS, and they could then claim the full amount, which in 2024, $16,810 even if they didn't pay that, and that's per child,

Dawn Davenport  12:47  
okay, what is a $0 subsidy agreement? And does that qualify for special needs and getting the full credit even though you've not paid anything?

Josh Kroll  12:57  
I think yes. The way, I need to reach out to the people that write the instructions to try and see if we can get the instructions to say something a little different, because right now, they talk about a monthly payment. But in the past, the person who worked for the IRS and wrote the instructions, and is now retired, says, As long as it's one of the three things, as long as it provides either a monthly payment Medicaid or non recurring adoption expenses that would qualify. The instructions say that it's a adoption assistance agreement with the monthly payment. But I can't represent anybody in tax court, but I would help fight with anybody that's challenged on that. I would fight if they had a $0 agreements. The $0 agreements are something that is done as a safety net where, you know, you're adopting a young kid. They may not have any obvious like, you know, cerebral palsy or Down syndrome, obvious physical disability, but there's a worry that they're going to have a disability in the future, and they're too young. Doctors don't want to make a diagnosis. It's a safety net the state provides. It says, hey, if problems arise later, we can activate the monthly payment. And so it's a really great thing. Not all states do it. Most states do it. And I can say with unfortunately, Georgia, when they do it, they don't provide any of the three parts the monthly payment, Medicaid or non recurring. So if someone has a $0 agreement in Georgia, that likely won't qualify. But every other state that does $0 agreements, it should, and they have. They call them deferred often, future risk, future needs, high risk, things like that. Interesting.

Dawn Davenport  14:38  
Okay, it's weird that one state, and if the state provided free tuition, that doesn't count. It has to be Medicaid or a monthly payment, or it was a third one there, but yes, the reimbursement of non recurring Gotcha. Yeah, so covering tuition would not count. No, I. Interesting So Becky, what about a special need? Child for international adoption? The vast majority of children, fact, almost all the children who are being adopted from abroad now have some form of special need, be it age or medical or mental health diagnoses. What about those kids? What are they eligible for under the special needs adoptions, for the adoption tax credit,

Becky Wilmoth  15:24  
well, for international adoption, it is strictly for qualified expenses. The Special Needs designation is strictly for foster care adoptions. So what you and I consider special needs and what the IRS can consider special needs is two very different things. As Josh said, you know, someone that has a specific, you know, obvious disability, and then those that they think is high risk, you know, it's basically what the IRS is, is hard to place without assistance. That's what they consider special needs, that if there was not something in place, you know, there would be a lot less likely chance that adoption would be completed. But for international it is strictly for expenses.

Josh Kroll  16:08  
And let me add one more thing. So for the purpose of the IRS, the special needs determination is that adoption assistance agreement, there are some private domestic adoptions that can qualify, but they have to be domestic for adoption assistance, and they would qualify also, even if not adopted from foster care. But the key thing is that adoption assistance agreement.

Dawn Davenport  16:32  
How would they get adoption assistance? If they're not being adopted through foster care, then

Josh Kroll  16:36  
it could be subsequent adoption from a dissolution or death, and they received adoption assistance in the prior one, or if they receive SSI prior to finalization, they may qualify for adoption assistance. Even with a private adoption.

Dawn Davenport  16:55  
Something that happens not infrequently, is that an adoption match will fail, and that during that process, the prospective adoptive parents have incurred cost working towards this adoption that did not happen. So Becky. What happens then, to the money can they claim? Can they get anything back from the expenses that they have incurred for that adoption?

Becky Wilmoth  17:21  
Yes, they can. They can claim the adoption tax credit. The only caveat is they have to wait until the following tax year, and it's for domestic adoptions only. So if you, you know, had paid out a bunch of expenses in 2024 and the adoption failed, or the, you know, the birth mother changed. Birth mother changed her mind. Whatever the situation is, you have to wait until the following tax year. So you would not be able to claim those expenses on your 2024 tax return, but you would be able to claim them on your 2025 tax return. So if it's failed, or even if it's not completed yet, and it's a, you know, a private domestic adoption. You can claim them, but you just have to wait until the following tax year.

Dawn Davenport  18:07  
So let's say that you went through with this. The adoption failed, and it took you two more years, but you kept at it, and you were able to finalize an adoption. Can you then claim the expenses for the final adoption. If you've claimed the expenses for the failed adoption, whatever

Becky Wilmoth  18:26  
you receive for credit on the failed adoption has to come off of the top of the successful one, because the IRS code says per successful adoption. So let's say for an example, you had 5000 in expenses on a failed adoption, but then the next year you have a successful one. And so like, for example, you know 2024 it's 16,810 so if you claimed a prior $5,000 credit on a failed adoption, you would reduce that 16,810 by the 5000 that you previously received. And you would claim the difference of the 11,810 so you could still claim some you would just have to reduce it by what you have already received. Okay,

Dawn Davenport  19:17  
but it's per the key there is, it's per successful adoption, so you don't then get an additional one. You don't get the whole 16,000 again,

Unknown Speaker  19:27  
no, yeah, gotcha.

Dawn Davenport  19:30  
Let me interrupt this interview to thank the jockey. Being Family Foundation, it is through their support that we're able to bring you the free courses that we offer on our website. These courses are terrific for anyone who is parenting, and you can find them at Bitly, slash, JBf. Support, that's B, i, t, dot, l, y, slash, j, b, f. Support, all right, what is the income level? Cut off. Josh modified, adjusted growth. Tax income, which would exclude you from claiming the adoption tax credit in 2024

Josh Kroll  20:06  
it starts to phase out. The phase out range is always 40,000 it starts to phase out at 252,151 and it's completely phased out at 292,150 that's for 2024 it will be higher in 2025

Dawn Davenport  20:26  
you've alluded to this earlier. But how long can the credit be carried over? Josh, in other words, if you don't use it all or any of it at all, how long can you carry it over? Let's say you don't have much tax liability one year. But two years hence, you do how long can you use that credit? It's

Josh Kroll  20:46  
a total of six years. So the year you claim the credit and five additional years to use it. And if you've got credit claimed in multiple years, you use your older credit first, whether that's as Becky was talking about a private domestic adoption that maybe isn't finalized yet, or in an example, with a failed adoption, or you've done multiple adoptions, you're using the older credit first, it's like, you know you're eating the leftovers from Thanksgiving before you know you're starting on anything else.

Dawn Davenport  21:16  
Gotcha? Yeah. So Becky, Josh talked about why it was important, even if you don't think you are going to have tax liability this year to go ahead and apply, let's say you didn't take Josh's advice and you didn't apply, or you didn't know about the adoption tax credit. You're listening to this show and you're going, well, I'll be doggone. I think I'm eligible. And that was my adoption though, was four years ago. Can you amend your taxes to then claim it, even if you didn't claim it first time around,

Becky Wilmoth  21:45  
absolutely, since the adoption tax credit has a five year carry forward, even if it was four years ago, you can amend, you know, go back to four years. You won't receive a credit for that fourth year or receive a refund for that fourth year, but then you can carry it forward, because you can get a refund for up to three years when you amend your tax return. So if you you know you qualified in a prior year and you have not taken the adoption tax credit, you can absolutely go back and amend your returns. And then if it's past the three year mark, but it's not past the five year mark, then you can absolutely amend to carry forward, which I have done a lot of those where someone just heard about it and they had adopted, you know, three or four years ago. You know, you won't get a refund for that fourth year, but the three years that you can get a refund, it's well worth going back and amending for Absolutely. And

Dawn Davenport  22:43  
we hear from people almost every year as a result of this show, where they'll wait, wait, wait. You mean I could be eligible for that? Absolutely. Josh, will the adoption tax credit offset self employment tax? It

Josh Kroll  22:58  
does not offset self employment tax, it doesn't offset other taxes, but I believe the self employment tax is the most of them. But there is something that Becky knows better than me, because she's the actual tax professional here.

Dawn Davenport  23:12  
She's the grown up in the room. Yeah,

Josh Kroll  23:15  
no, she's the professional. I mean, I'm, like, a very experienced do it yourselfer, where you know she's someone that you know the general contractor would hire. So, exactly, yeah, exactly. But for self employment, that's one that really is a big surprise to people. And the one that I found that it can be a bit really big surprise for is like clergy who have the housing allowance, and they were thinking it would help with the self employment tax on the housing allowance portion, and it doesn't, and that's usually a pretty big disappointment for them. Yeah,

Dawn Davenport  23:52  
Becky, I am not that clued in on the secure act, but how does the secure act? What is it, and how does it impact claiming the adoption tax credit? A

Becky Wilmoth  24:04  
couple of things, of course, you know, the Adoption Tax Credits permanent. But one of the things that the secure Act was wonderful for is what we call cubod. It's qualified birth or adoption distribution. And with that secure act, what that meant was each spouse could take $5,000 each out of the retirement. Of course, you would have to pay the tax on it, but there's no penalty, because, you know, I have seen it in and you guys have too where maybe someone needed that extra boost to finish their adoption. And so they would pull money out of their retirement. Well, they would have to pay the tax and the 10% penalty. Well, what Cubo does? It eliminates that 10% penalty that you would have to otherwise pay now it has to be done in a year that the adoption is final. So it's the the double blessing of this is number one is. Each spouse can take out 5000 so you're talking to $10,000 possibility of taking it out penalty free. And since the adoption is final, the adoption tax credit can help pay the tax on that retirement distribution. So that's that's one of the big benefits of the secure Act, is that qualified birth or adoption distribution being able to be taken out without the 10% penalty, that's that's a huge deal.

Dawn Davenport  25:28  
Yeah, yeah, it seems like it would be. So when you file taxes, do you have to have the child's social security number, and what do you do if it's unavailable when you file which is not unusual when you're adopting? I'll throw that question to you, Josh,

Josh Kroll  25:42  
you can apply for an A 10 or an ITIN, but in general, for families, especially if they've got a young child, I would delay filing for the adoption credit and trying to get that social security number, because if you don't have a social security number for that child, you can miss out on the child tax credit, and that's another $2,000 worth to people. Oh, yeah, that does make sense. Okay. That's actually the bigger issue with not having the Yeah. I mean, the bigger issue in the child welfare realm with social security numbers is, I hear a lot from families, you know, adopting from foster care, where they're like, Well, I don't have the birth certificate, so I haven't contacted Social Security, and I haven't updated the name yet. What do I file for the child? You know? And the advice always is, whatever the Social Security Administration has for them. If it changes later on, the IRS will see that change. So like, if, if I adopted today, and I go file and I haven't got an updated name or social security number for that child, I'll use whatever the social security administration knows when I file my taxes next year, and then if I change it, let's say next summer, in 2026 when I file my 2025 taxes, I'll just use the new information the IRS has or Social Security has, they communicate. That's the bigger issue I see with social security numbers and filing for this credit. So

Dawn Davenport  27:06  
there is such a thing as an adoption taxpayer identification number. Yeah, you're not recommending that that be used. You just hold off if

Josh Kroll  27:14  
you need to. I mean, you can Becky probably knows more about it than I do, but the bigger concern is people who utilize that may be missing out on things that they potentially could still get if they delay their filing. They're missing out on the child tax credit of 2000 Yeah, which

Dawn Davenport  27:32  
is $2,000 Yeah. All right, so now let's talk about when you can claim the adoption tax credit. Becky, we're going to talk about domestic adoption, domestic private adoption, international adoption, and then foster care adoption. So when can you claim those? Let's start with domestic private adoption.

Becky Wilmoth  27:54  
For domestic private adoption, you can claim when it's final, if you want to, you know, accumulate all of your expenses, because sometimes it may take two or three years. So you can accumulate those and claim it when it's final, or just as on a failed adoption, you can wait until the following year, till after those expenses are paid. So, you know, let's go back and say, if you had you're in the process of a private domestic adoption. You paid expenses in 2023 but it was not final. Well, you could not take them on your 23 return, but you could now take them on your 2024 return that you are getting ready to file between January and April 15. So you know, some choose to wait until it's final. But private domestic is the only one that you can take before it's actually finalized. The only caveat is you have to wait until the following year,

Dawn Davenport  28:50  
and the reason you might want to take it earlier or take it later, either one would be if you think that you will be owing more. So it might help you in another year exactly,

Becky Wilmoth  28:59  
because it does increase every year. So I mean, you are going to be able to get that much more of the adoption tax credit. You know, it's generally four or $500 difference from year to year. So if you can wait until the following year and take the higher amount of the credit and income exclusion, then absolutely do that. But domestic, private is the only one that you are allowed to do that. Take early, yeah,

Josh Kroll  29:27  
but you would still be able to access the higher limit if you were just doing it all along. It just subtracts what you've already claimed from the total amount of that year of finality, correct? And actually, some people I've talked to at least, I'm sure you have to, you know, filing for it in those earlier years actually helps them afford the expenses that are coming down the line. For people where it's taking multiple years, it can actually help them pay the expenses that are coming up too.

Dawn Davenport  29:54  
Yeah, that would make sense. Yeah. All right, so, Josh, what do we do for International. National adoptions. When can you claim the adoption tax credit? It

Josh Kroll  30:03  
needs to be considered final. If it's final in country, it's considered final. But there are some, what they call safe harbors, that can allow a little bit of flexibility, especially if you live in a state that requires you to do a re adoption in the US. This would probably depend on the family's financial situation, on what they think is best in terms of timing, especially if they're hitting the income limits on it. And it is treated a little differently for Hague versus non Hague countries when it's considered final,

Dawn Davenport  30:41  
meaning that some for non hate countries, it's possible that the adoption will not be final until the child is here in the US.

Josh Kroll  30:48  
I'm not sure if that exactly is correct. You might know that better than I do, but if you look in the instructions, and it has information about the timings, and then it has links to the two different revenue procedures that cover the issue

Dawn Davenport  31:02  
gotcha and re adoption, the cost for re adopting a child in the US is a qualified expense, correct, even if it's not required, because if it's not required, there are many families who choose to do the RE adoption anyway, because it just makes things easier for The child to have a US birth certificate. Yeah, Okay, gotcha All right. Becky, now into foster care adoption. What about the timing on that? When can you claim the adoption tax credit for that?

Becky Wilmoth  31:32  
The year that it is finalized is the only time that you can claim the adoption tax credit for foster care adoption. So just the year that it's final, you

Dawn Davenport  31:43  
still have six years in total to go back and claim it correct if you didn't claim it at the beginning five, five additional years. Yeah, yeah. I

Josh Kroll  31:53  
mean, technically, there are some situations where families are fighting with the foster care system and incurring legal expenses, and they could claim those expenses just like a private domestic infant adoption the year after they paid them. But if they're counting just on the special needs criteria, that does have to be the finality.

Dawn Davenport  32:17  
Let me stop here for just a moment to ask a favor of you, it would be a huge gift to us if you would subscribe to this podcast. If you're not, and that's easy to do in whatever app you're using, but also rate and review this podcast. The rating is a star system, and we appreciate that. We appreciate your reviews even more. So whatever app you're using has the ability for you to rate this podcast, it helps us a lot, because that's how it's recommended to other people. Is based on the ratings. Also tell a friend if you've enjoyed it. That helps us as well. Thanks so much. Now you can get back to this interview about the tax credit. All right, so we see more people, more employers doing this, which is a wonderful thing, and that is providing adoption benefits for their employees. How does the adoption tax credit work in conjunction with the employee adoption benefits? Becky,

Becky Wilmoth  33:14  
it is a great benefit. And what happens is the employer, there is no requirement for them to contribute or reimburse. The main thing with an employer qualified Benefit Program is that they offer it to all of their employees. And so what that means is, as long as everybody's offered the program, some companies do reimburse. But the best benefit of it is, is you can exclude the same amount of the credit as you can on the income exclusion. It just cannot be for the same expenses. So let's say, for an example, you had, you know, 30,000 in qualified expenses. You know, you would take the adoption tax credit for the 16,008 10, and then take the difference as an income exclusion. And so for the employer, the only real work for them, you know, unless they have a reimbursement or a grant, the main work for them is to put it in box 12, code T, and that reduces the amount of taxable income on their w2 in box one. So, I mean, it's a great benefit. And so I tell everyone you know, if your adoption is not finalized yet, by all means, go to your HR department. Dave Thomas Foundation has a great tool kit on their website. That is wonderful. I highly recommend they print that PDF out, take it to their HR department. Some HR departments have said, you know, yes, we will do this because it's considered a fringe benefit. Oftentimes, they will either do a reimbursement of expenses or they will just offer a five. 1000 or a $10,000 grant when the adoption is finalized. And so when you have that benefit program in place before the adoption is finalized, then you can qualify for the income exclusion and for the adoption tax credit, just not for the same expenses, unless it's a special needs out of the foster care system. Now, if it's a special needs adoption out of the foster care system, you would qualify for the full amount of the credit and the full amount of the income exclusion,

Josh Kroll  35:32  
but they have to have a an adoption assistance program through the employer, correct? Yeah. What

Dawn Davenport  35:40  
is the qualified birth or adoption distribution from a qualified retirement plan without penalty? How does that work?

Becky Wilmoth  35:48  
That is the cue boat that we were talking about just a few minutes. Okay, it's qualified birth or adoption distribution, and that is where each spouse can take up to $5,000 out of their retirement plan, and it's penalty free now they'll have to pay the tax on it, but the adoption, it has to be done in a year that the adoption is finalized, and

Dawn Davenport  36:10  
that's connected with the secure act, correct. Gotcha, okay, and Josh, you already made mention to this, but it is definitely possible to get the child tax credit and the adoption tax credit,

Josh Kroll  36:23  
yes, most definitely and strongly encourage it. It will likely increase the refund, because if you have enough earned income, some of it can convert to what's called a payment, a refundable credit called the additional child tax credit. So highly recommend families take both

Dawn Davenport  36:41  
do you need to do anything different in order to get the child tax credit for your adopted child?

Becky Wilmoth  36:45  
No, just have to have a social security number. Yeah, gotcha

Dawn Davenport  36:49  
All right. Becky, in years past, quite a bit past, it was required that you would send the IRS documentation for the adoption tax credit when you filed your taxes. What is required now, and do you need to send it in? It is

Becky Wilmoth  37:05  
not required. Thankfully, the form 8839 can be electronically filed with the rest of your tax return, and so documentation is not required to be sent in. I do recommend that you get a envelope market IRS documentation, put your final judgment of adoption and your subsidy agreement. Both of those have to be signed and dated by the authorities. If it's a foster care adoption, or if it's a domestic or international you put the final judgment of adoption, your home study and all of your qualified expenses in that envelope, that way, in the event that you do get a letter from the IRS requesting documentation, you have that all right there in that envelope. Just do not send originals. Always send good copies. And for international I recommend that you make copies of your receipts when you get home, because a lot of international receipts fade very quickly because they're thermal receipts. So just make good copies of everything, put it in that envelope market IRS documentation, and then, if you know you do get a letter from the IRS, you will know exactly where to go and what you need. But thankfully, as of right now, you do not have to send that documentation in when you electronically file your return.

Dawn Davenport  38:24  
Unless you get audited, you're not going to be required to correct okay. Becky, how do people find a tax specialist knowledgeable on the adoption tax credit? Surprisingly, we keep hearing from people that whoever they're using to file their taxes. Often don't know much about it.

Becky Wilmoth  38:43  
That's very true. That's one of the reasons we started our mission many, many years ago, to help as many adoptive families as possible. My first recommendation is always go to the IRS directory for the return preparer directory, and make sure that prepare is on that directory, and make sure that they are legal to prepare returns and ask questions. Don't ever be afraid to ask questions. How many adoption tax credit returns have you done? How many cases have you won concerning the adoption tax credit, you know, with the IRS? How much dealings have you had with child tax credit issues and adoption tax credit issues? Because many times we have to explain to the IRS how it works, as far as on the tax return and how it covers the tax liability. So you know, don't ever be afraid to ask questions. How many returns have you done? How many returns have you you know when return went under review for adoption, how many have you handled? And how many have you won? I mean, all of those questions are very important to ask, or if they tell you you don't qualify find somebody else.

Dawn Davenport  39:56  
Do you need to use somebody local to you? No,

Becky Wilmoth  40:00  
actually, we have a secure portal that we use. We do all 50 states because we are enrolled agents, which is the highest license you can get with the IRS. So if there's no, you know, no one local, and you have to find someone that you need to do it through a portal, and you feel comfortable with them absolutely, you know, it does not have to be someone local.

Josh Kroll  40:23  
One thing I just want to add, I think one of the times we've done this before, I brought up that sometimes tax repairs will tell families they're going to charge them to research the credit. And I think Becky, you said that that was like a big red flag.

Becky Wilmoth  40:39  
That is a huge red flag.

Josh Kroll  40:40  
Okay, yeah, just wanted to get that back in here, yeah.

Becky Wilmoth  40:44  
And that's why I encourage everyone to please ask questions, you know. And if they're going to say, well, I'm going to charge you so much per hour to research this, then go somewhere else. Honestly. And I realize, you know, nobody can know 100% of the tax law, it changes every year. That's why we have to have 72 CE credit hours. There's a lot of tax law changes every year. And this next year is going to be a huge, huge deal, because the tcja is going to expire

Dawn Davenport  41:18  
in 2025 what is tcja? Well, that

Becky Wilmoth  41:22  
is the changes that were made back in 2018 when the personal exemptions were done away with and the standard deduction was doubled. So some people say, well, oh, we want it to go back. No, you don't, I promise you, you don't, because you are going to pay a lot more tax even though fewer and fewer people can itemize now with a higher standard deduction, if you go clear back to that 12 and $13,000 standard deduction for a married filing joint and then you get just a little bit of something for personal exemptions, you know that tax cut and job act is going to look a whole lot better to you than You realized. So, you know. And that expires in 2025 because it was from 18 to 2025 so there will be a lot of changes in the, you know, the next year, tax law wise. And so that's why our the tax changes book that we have every year is three and four inches thick. And so, yeah, exactly. And

Josh Kroll  42:22  
riveting material, three

Dawn Davenport  42:25  
to four inches thick of tax.

Unknown Speaker  42:28  
It is tax

Dawn Davenport  42:31  
anything worse. And

Josh Kroll  42:32  
what she's talking about is what people commonly called the Trump tax cuts,

Dawn Davenport  42:36  
right? Yeah, yes,

Becky Wilmoth  42:37  
right. And a lot of those will expire next year. I'm hoping it will be similar. I look for some of it to be reformatted. I'm really hoping that the child tax credit in particular is increased, and the other dependent credit, you know, kids are 17 and on, you only get $500 for other dependent credit. Well, we all both know, all three of us know that kids do not get cheaper at 17. No,

Dawn Davenport  43:06  
we always laughed at that our 17 year old was more expensive than you know the 12 year old. 500% Yeah, 100%

Becky Wilmoth  43:14  
so, yeah, those are things that you know are coming around the pike. But thankfully, you know, we do know that the adoption tax credit is secure. That was

Dawn Davenport  43:23  
going to be a question I asked. There's no reason to think that it will be done away with under the new administration.

Becky Wilmoth  43:29  
No, absolutely not. It is a very bipartisan, friendly issue. The biggest thing is, you know, we want to get it refundable again, because it does help so many more people when it's refundable. So we always encourage everyone to contact your senators, representatives and tell them how much more. Because, as Josh talked about earlier, you know, self employment tax is not covered. And pastors, you know, they are considered dual status, so all of their income is considered self employment tax, and then if they have housing allowance, that is self employment tax, and there are a lot due to COVID, there are a lot more people that are self employed now than there were, you know, even four and five years ago. And so when it's not refundable, it doesn't cover self employment tax. This last year is the first or the last year a first time homebuyer payback. It didn't cover that, and it didn't cover the 10% penalty for early withdrawal out of your retirement. So luckily, because of Cubo, you know, you can take that 5000 per spouse out now, but in in times past, that was not so. And so with it being non refundable, it would not cover those things. So that's that's a huge, huge thing. If we can get it refundable, it helps so many more people. Yeah, right,

Dawn Davenport  44:48  
it would be a very big deal. And we're going to talk about that and to find out more information about how to advocate for refundability. Go to adoption, tax credit.org. Board. And from that site, you can figure out how to access all of your representatives. That site will walk you through what you need to do. There's

Josh Kroll  45:09  
a real easy way to send something to your three members of Congress, your two senators and your representative. And what's really nice about that, we are part of the group that hosts that website at families rising. It helps track the contacts. So when higher end groups are reaching out and talking with staffers from a member of Congress, they can say, we know that you got 20 contacts about this issue from your constituents, and so they can demonstrate the need. So it's actually encouraged to use that, because we use those data points in talking to staffers of members of Congress,

Dawn Davenport  45:47  
and you're advocating and you're lobbying, yeah, and you access that from adoptiontaxcredit.org.org, yeah,

Josh Kroll  45:54  
in the Take Action tab, Josh, what do

Dawn Davenport  45:57  
you think the chances are for refundability For this year, for 2025 Do you think that it will change because of the new administration?

Josh Kroll  46:08  
No idea. I mean, it's gonna go through. If you wanted me to predict anything coming out of DC for the last 10 years, I'd be like, Are you kidding me? Okay,

Dawn Davenport  46:21  
well, I'm gonna ask Becky. Then Becky, are you willing to go out on the limb here and say what you think might happen? I hope so. Well, yes, that's a weenie answer. Okay,

Josh Kroll  46:32  
here's the thing, whenever the adoption tax credit law has changed, it's been part of bigger packages, right? So the fact that these, we'll just call them Trump tax cuts are expiring. That increases the chance of this happening, just like in 2010 and 2012 the Bush tax cuts expiring, elements of the adoption tax for that we're going to revert to the original version got extended or changed. So this is going to be our best chance in a long time. I agree, and as Becky says, It is bipartisan. I mean, it would be better if we still had because I think he's lost Senator Casey from Pennsylvania, and we didn't have the retirement of Senator Blunt from Missouri. Bipartisan leaders who are big champions of this credit. It'd be nice if they were still around to sort of help carry the water, but we're going to keep the grind on, just like we have been since 2011

Dawn Davenport  47:25  
All right, folks, adoption tax credit.org and even if you are not thinking about claiming the adoption tax credit because it's not, it's not applicable to you. If you are an adoptive family, pay it forward for the people who are coming behind you. The other

Josh Kroll  47:43  
thing I would just add is as dry as three to four inches of tax law updates, sounds really bad. I do spend much shorter periods of time looking at tax stats. And families that make under 30,000 have a hard time using this credit. That's generally going back 15 years, and as we have more and more kin, especially grandparents, some of them who are retired and don't file taxes otherwise, they're missing out on this credit, but they've stepped up for those kiddos, and they shouldn't miss out on this just because they've stepped up, but are retired now and don't have to file taxes 1,000% Yeah,

Dawn Davenport  48:19  
I am So glad you brought that up, because the truth is, whereas we make more of a push towards encouraging kin to provide permanency for children, and we know that the average income, as you say, they are retired, even if they're not retired, they usually are making a low income, and these families are stepping up, and this would be a huge help to them. And

Becky Wilmoth  48:43  
honestly, some of those IRS and adoption statistics are why we started our mission, just because we saw such a huge discrepancy between the average income people that are the the majority of the adoptive families that were not aware and, you know, did not take the adoption tax credit. It is not just rich people who are adopted. No, those are the ones that need it the most, absolutely. And we've been doing this a long time now, and the families that have came back and said, We don't know what we would have done, no, if we hadn't have found out about this and got this, you know, this huge credit. It's a lot of money. I don't want anybody to leave that kind of money on the table exactly well.

Dawn Davenport  49:26  
Becky Wilmoth, Josh Kroll, thank you once again for talking about the adoption tax credit and Becky, thank you for reading three to four inches worth of material, because I sure as heck wouldn't. And Josh, thank you for looking at adoption statistics, although I don't think those are as dry, but whatever, I truly appreciate both of you and what you do. So thank you so much for once again, informing us about the adoption tax bill.