Creating a Family: Talk about Adoption, Foster & Kinship Care

The 2025 Adoption Tax Credit

• Creating a Family • Season 20 • Episode 6

Share episode

Click here to send us a topic idea or question for Weekend Wisdom.

Let us know about your adoption journey

Did you finalize an adoption in 2025 or within the last several years? Are you eligible to claim the Adoption Tax Credit? Listen to this conversation about the 2025 Adoption Tax Credit. Our guests are 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 discuss:

  • What is the Adoption Tax Credit for adoption being claimed on 2025 federal taxes?
  • What is different about this year’s Adoption Tax Credit? 
  • How would you claim the Adoption Tax Credit if you get a tax refund every year?
  • What types of adoptions are included or excluded in the Adoption Tax Credit? 
  • Are kinship adoptions covered? Are kinship guardianship arrangements/expenses covered? 
    • What if the relative child was never involved with the foster care system?
  • Can you claim the Adoption Tax Credit for each adoption you complete, even if you completed them in the same year? 
  • What is a Qualified Adoption Expense for purposes of the Adoption Tax Credit 2025?
  • When can you claim the Adoption Tax Credit for:
    • Domestic Private/Infant Adoption
    • International Adoption
    • Re-adoption in the US for International Adoption
    • Foster Care Adoption
    • Kinship Adoption
  • For purposes of filing the Adoption Tax Credit, what qualifies as a 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” in foster adoptions?
    • What is a $0 subsidy agreement?
  • Can you reclaim your expenses for an adoption that did not result in a placement (that is, a failed adoption)? How?
  • What income level (Modified Adjusted Gross Income) is excluded from claiming the Adoption Tax Credit in 2025?
  • How long can the credit be carried over?
  • What if you didn’t claim the Adoption Tax Credit when eligible? 
  • Will the Adoption Tax Credit offset self-employment tax?
  • How does the Secure Act impact us if we are claiming the Adoption Tax Credit for 2025 taxes? 
  • What should you do if the child’s Social Security Number is unavailable when you file?
  • How does the Adoption Tax Credit work in conjunction with employee adoption benefits? 
  • If you adopt, can you still claim the Child Tax Credit?
  • Do you need to send any documentation for the Adoption Tax Credit to the IRS when you file your taxes? 
    • What type of documentation should you keep in your records? For how long?
  • How to advocate for refundability? https://adoptiontaxcredit.org

Support the show

Please leave us a rating or review. 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:

Please pardon any errors, this is an automated transcript.

Welcome to creating a family, talk about adoption, foster care, and kinship care.
Today's episode is an annual treat that we get to do with our guests to talk about
the adoption tax credit. You may have already heard that there's some changes coming
down the pike for the 2025 adoption tax credit, and so we're excited to have the
guests here to talk about it today. Becky Wilmouth is an enrolled agent and adoption
tax credit specialist with Bill's tax service, and Josh Kroll is the adoption and
subsidy resource center coordinator at Families Rising, which many of you might know
as NACACAC. So let's jump right into it, guys. Welcome to the show,
and thanks for being here with us. Thank you. Thank you for having us. Becky, we'll
start with you. What is the adoption tax credit for adoption being claimed on 2025
federal taxes? The maximum amount allowed for 2025 is going to be 17 ,280.
That is, for the credit and for the income exclusion are both maximum 17 ,280.
And Josh, go ahead and let us know what's different about this year's adoption tax
credit. There's two big changes. One will impact almost everybody. The other will
impact far less people. The big impact is 5 ,000 of it is refundable of that 17
,000. And that particularly will help families who adopt larger sibling groups or
families of lower income, like grandparents who are adopting their grandchildren. Often
the tax stats show that families have made less than 30 ,000 couldn't use any of
the adoption tax credit otherwise. The other change that's not going to impact very
many people is that children who are adopted through tribal nations,
tribal nations now can determine those children as special needs, whereas prior to
that they weren't able to. But because there are, I believe, over 600 tribal nations
and their programs all work differently, how exactly the IRS and the tribal nations
make that determination will probably look very different among them. Great.
And how did this change come about? Let us know kind of the backstory of how this
happened. Well, both of these changes have been advocated for for probably 15 years,
and they both got rolled into the big bill that got passed in July? So this is my
little plug. If you're listening, your voice matters and making your statement to
your legislators makes an impact. Becky, can you tell us what is a credit and how
does it differ from a deduction or some other form of tax savings? What a tax
credit actually does, it helps cover your federal tax liability. Now,
a credit is something that covers your federal tax liability. A deduction is
something that actually lowers your income, which will have a chain reaction to less
tax. But a tax credit is always better because it's helping cover that federal tax
liability. And with 5 ,000 of that being now refundable, that has going to also help
me self -employed people because previously when none of it was refundable tax credit
since 2012, it would not cover self -employment tax. So this is a beautiful change.
We're still advocating, obviously to be fully refundable again because it's been quite
a while. But this is a great benefit for families now to be able to have that tax
credit to help cover that federal tax liability, to get that 5 ,000 refundable
portion, and then what they do not use will be carried forward to the next year,
up to five years or until all of it's used. Great. And so if those families are
interested in claiming that adoption tax credit how do you go about getting started
well the first thing depends on you know the type of adoption that you have a
foster care and international has to be final first before you can claim that credit
and you would claim that credit on your electronically filed tax return on form 88
39 and then it carries to schedule three and then it carries to your 1040 and if
it's a domestic private option you can take expenses but you have to wait until the
following tax year before you can claim that you can claim it before the domestic
private adoption is finalized like I said you have to wait until the following tax
year to be able to claim any of those expenses but thankfully But thankfully, like
I said, everything can be electronically filed, and that form 8839 is where the
magic happens. And I just want to add, if it's a private domestic adoption and it's
finalized, you can take expenses the year that you finalize the adoption. You don't
have to wait another year. Correct. Great. Should you still apply the credit to your
federal income taxes if you don't have any federal tax liability? Absolutely.
Absolutely.
So like I always, all my example is I've ever given start out with me owing some
money, but always getting a refund and then my refund gets bigger. But yes,
as Becky was saying, now that it's refundable, even those folks who truly do not
have any tax liability will benefit from this. Yes. That's a great point. Thank you.
Becky, what type of adoptions are included or excluded in this whole process. Can
you run them down for us? Sure. All adoptions qualify for the adoption tax credit
except for your spouse's child, your stepchild does not qualify for the adoption tax
credit. So what is, what does qualify is the foster care adoption with special need
subsidy agreement, private, Domestic adoption and international adoption qualify.
Step parent does not and embryo does not. Okay. Does same -sex partner or second
parent adoption qualify? It would just be whoever claimed it. If they're not married.
Right. If they're not married, correct. Thank you. Thank you. And what about
surrogacy? Only if they re -adopt. Gotcha. Thank you. So that sounds to me like
kinship adoption.
through that? They would apply for the expenses only. Okay.
And Josh, can you claim the adoption tax credit for each adoption that you complete,
even if you've completed them in the same year? Yep. And it's tricky, you know,
I've crazily enough in this job, I've actually met three families who have adopted
sibling groups of seven. and sometimes you might have people, yeah,
you do this long enough, you get all sorts of experiences. And, you know, I've
definitely run into situations where people are like, well, there's only three
children listed on the form. Back in the day, you only used to be two, so I can
only do two. It's like, no, people who actually read the instructions, you can do
multiple, you know, and software will walk you through it pretty well. But you do
as many, whether it's a sibling group or not previously related children,
you just keep doing them for the ones you've done. For everyone that you finalized
in that year, you get to apply for the credit for each one of them. Yeah. Yep.
Okay. So Josh, let's talk about the qualified adoption expense and how it impacts
and relates to the purposes of the adoption tax credit? So we're going to break
this down into two different categories. Typically, adoptions from foster care have
very little expenses, and those that they get often are reimbursed by the state in
what's called non -recurring adoption expenses. In some states, that can be, you know,
them paying the attorney fees that they magically make you get and they magically
cost that exact amount of money, which is nice because it's no out -of -pocket
expenses for the family. But for those families who adopt from foster care,
if they get adoption assistance adoption subsidy or for any of our Washington State
folks adoption support, they get to qualify for the full amount regardless of their
qualified adoption expenses. Qualified adoption expenses are basically expenses paid
towards the legal process of adoption. So home study fees, background checks,
attorney fees, agency fees, things like that, all qualify.
And if it's reimbursed by another program, they wouldn't qualify. I think I have
that right. Your, let's say, adoption attorney, court costs, travel expenses, and
travel expenses can be high for international adoptions, but I think that covers most
of it. Becky probably has some extra to add in. Yeah, that's one thing,
especially when you're talking about international adoptions, you're going to have some
expenses that you don't have for a domestic adoption. You know, your travel and
orphanage fees and some orphanages, if you're adopting internationally, they require
you to have a cell phone specifically for that orphanage only. So I mean, there's
some, you know, differences on the domestic and international. But like just said,
basically any fees that are required and necessary for the adoption, the only
expenses that are not qualified are birth mother expenses. And that's because it
violates state and federal law. And what would be an example of birth mother
expenses that know of? A living expenses generally. Yeah,
it's generally their living expenses, either, you know, pre -birth and post -birth.
You know, it generally spends about a six months time, you know, once you're matched
with that person, but those are not qualified expenses. But, you know, generally,
you know, I'm going to say 95 % of the time all of your other expenses are more
than enough to qualify. Okay. So I'm going to go through the different types of
adoption. And then, Becky, if you could answer for me when it's appropriate to claim
the adoption tax credit for that type of adoption. So we'll start with domestic
private infant adoption. When is it appropriate to claim that adoption tax credit?
Well, you have two choices. And private domestic adoption is the only time that you
have a choice. You can wait until it's finalized, or you can wait until the
following tax year, because sometimes it's maybe a two or three year process. So as
long as if you want to go ahead and start claiming the adoption tax credit before
it's finalized on a private domestic, you can, but like I said earlier, you just
have to wait until the following tax year, or you can wait and just claim it
whenever it is finalized. Okay. And how about for international adoption?
International adoption must be finalized. Okay. Does finalization happen in the country
that sends the child? Generally, yes. If they are part of Hague convention. There is
some flexibility on which year for international. If you have to re -adopt in your
state, you can choose that year. If you're, and the only reason you would do that
is if you're running into income limits and you might not, in one year might be
better than the other. Okay. That was going to be my next question is what about
re -adoption? Okay. Because some countries do require re -adoption once the child has
come home. Yes, they do. And that's why they give you that two -year span on
international adoptions. Great. Thanks for clarifying that. How about for foster care
adopts?
But if it's over a multiple year process that you are doing this, then it would be
the same as private, domestic. You could take it before it's finalized. You just
have to wait until the following tax year. Gotcha. It really comes down to you if
you have expenses or if it's a child in Fosch Care, because Fotch Care is looking
at KIN more and more as permanency options. So if you don't have any out -of -pocket
expenses, but you're going to get that adoption assistance, then it's when it's
finalized. Great.
I'd like to take just a short break to ask you for a favor. Could you please use
the link in your podcast player or in your YouTube show notes to tell us a little
bit about your adoption, foster care, or kinship care story? We want to know where
you're listening today. We want to know what you like to talk about around adoption,
foster care, or kinship care, what topics are of interest to you? What do you need
to learn more about? What has been one of the most helpful resources that you've
had in your adoption or foster care or kinship care journey? How about what type of
information is most helpful to you on the ongoing as you're,
you know, raising kids or disciplining kids or learning how to do those things? So
any of those questions or all of those questions, we'd love
international. By law, it can't be international. But typically international,
all the special needs does is let you like a trump card qualify for the full
amount, even if you didn't have any expenses. So if you are doing like an
international adoption of a like a magically fragile child, you're still probably, you
know, having expenses that are in excess of the top amount. So private domestic
adoptions, there's a small chance, but they potentially could be eligible for adoption
assistance, but most of the time it's going to be children adopted from the foster
care system. And what's really difficult for people to wrap their head around is we
all think special needs. We're thinking like individuals who compete in Special
Olympics, people with a known disability. And it also means hard to place.
The statutory language is the same for adoption, almost exactly the same for adoption
assistance in federal law as it is for the adoption tax credit. So there needs to
be a determination made by the state. Like if I adopt privately and I only pay $8
,000 in expenses, but I adopt privately, but I never get that adoption assistance,
that child's not special needs in the eye of the IRS because the state never made
that determination or the tribes newly. And so how does the state,
how do you go out getting that determination for the IRS? It's when they determine
if the child's eligible for adoption assistance. And clarify, we'll call it adoption
subsidy because adoption assistance also is used for employer -provided assistance.
Well, I'll use adoption subsidy from now, but everything I've just been talking about
is not employer -provided. It's from the states. Right. Right. Okay. So the adoption
subsidy is the proof that a family needs when they're applying for special needs
adoption to the IRS adoption tax credit process. Okay. What is zero dollar subsidy
agreement. It's a great question. Probably a third to a half of the states have
zero dollar agreements, which are a great safety net. They provide,
they don't provide a monthly per diem like they were getting in foster care, but
typically they provide Medicaid and likely reimbursement of non -recurring adoption
expenses. And I've never been able to get the IRS arrest to say that that is good,
and I'm not a lawyer or tax professional, but if you have one, I'm happy to share
my legal reasoning as a rank amateur about why those should qualify,
because they are an agreement by the state, and they have provided a benefit under
that program, because those are the three programs. There's a monthly payment,
Medicaid, and the reimbursement of non -recurring. Now, I have heard that in the
state of Georgia, they do zero -dollar agreements and they don't provide any of
those. I would not consider my child's special needs for the federal adoption tax
credit with a Georgia zero -dollar agreement, but most other states, yes. And if
anybody has questions, I deal with adoption subsidy, but I don't deal with adoption
tax credits. So please reach out to me if you have questions on that. And we will
link Josh's contact information and Becky's contact information in the show notes for
families who are looking for maybe more specific help or some clarification that they
didn't get from today's conversation. Becky, do you have anything to add to the
conversation about zero subsidy agreements or special needs adoptions for IRS
designations? I agree with Josh. I will argue with the IRS,
even on the $0 subsidy agreements, because when you look at the ERC code for the
IRS, it says that adoption is not possible without assistance.
And I agree with Josh, it's kind of hard to distinguish those words sometimes, but
it's actually subsidy. And because I have some that, you know, zero subsidy dollars
that, you know, is strictly just Medicaid, not the monthly stipend or the one -time
reimbursement. So I would argue that. If I mean, if you have this subsidy agreement
and the final judgment of adoption and foster care, you absolutely qualify. You just
have to be willing to explain to the IRS how it works and why it works.
So this wasn't necessarily in our outline in advance, but I'm curious How do
families go about advocating for themselves if they do need to do that?
Don't quit.
And I'm being very serious. I have fought every case and won.
So, I mean, you have to be, you have to be knowledgeable and you have to be
persistent. One, it took us three years to win and we finally won.
And, you know, of course, the client got a very large sum of a refund plus
interest for those three years from the IRS. You know, and honestly,
if someone tells you you don't qualify when you actually do, go somewhere else. And
don't be afraid to ask questions. And there's times that, you know, we've called the
IRS and they, just because of their understaffing, They are so understaffed and so
many have retired. You know, don't be afraid to call back and get somebody else.
And also remember that this is maybe 100 ,000 filings a year out of,
what, 100 million? So there's not enough, they don't have specialists who necessarily
are experts on this and they make mistakes. So be persistent. You know,
people can reach out to me, and I'll do everything in my power to help them.
Absolutely. And in addition to adding Becky and Josh's contact information in the
show notes, I will also link an article that we created a couple years ago about
how to find a knowledgeable tax experts to help you with these kinds of questions
should you decide you need to advocate for yourself and get more help. So,
Josh, can you reclaim your expenses for an adoption that did not result in a
placement? That is a failed adoption match. And if so, how? It counts towards a
successful one. So let's say I'm matched with an expectant mother.
I pay $10 ,000. I don't get a finalization because it's private domestic.
I can claim that the year after I pay that $10 ,000 to help me continue my
adoption journey. Okay.
That 10 ,000 will come off of what is available to me as I move forward with my
hopefully second and hopefully successful expectant mother placement and adoption.
So it's not an easy answer, but it's sort of a rolling total per adoption attempt.
I did have neighbors who had successfully adopted twins.
one, except they reversed one to two successful children. But, yeah, hopefully that
was clearer than mud.
Becky, do you have anything to add to that, or was that as clear as you're going
to do? Oh, no, that was very good. And it was very fortunate for them that it
wasn't the other way around. Yeah. Yeah, right.
Great. So, Becky, can you tell us about the modified, adjusted gross income and what
income levels are excluded from claiming?
And the total phase out for modified adjusted gross income is $299 ,190.
And it goes up each year for inflation as well as the credit they go up. One
thing you need to remember that, you know, for most people, maybe the modified
adjusted gross income is the same as the adjusted gross income. But for some people,
it's not. And that's what you need to remember. The difference between modified
adjusted gross income and adjusted gross income is because the modified adjusted gross
income is when what we have always called front page deductions. We're now they
would come off on a schedule. You're talking like teacher expenses,
IRA deductions, student loan interest. Those things are what we have always,
like I said, called front pages deductions, but those are added back in to your
income. And once those things are added back into your income, of course,
it is going to raise your modified adjusted gross income. And that's the difference
between the adjusted gross income that you generally, you know, see at the bottom of
page one of your federal 1040. and And once those things are added back in,
that is you're modified adjusted gross income. So what happens when you are in
between that $259190 and $299190 is it comes off in chunks.
And then you still may receive a portion of it, but you just will not receive all
of it. And then once you hit that $299 ,191, it's completely cut off.
Okay. And how long can families carry the credit over? For up to five years or
until it's completely used, whichever comes first. I just want to add, because it
builds into both questions, the modified adjusted gross income is only applied when
you're claiming the credit. It does not apply in year two. So like if I'm under
and I claim the credit, but I don't use it all up, but All of a sudden, I get
hired by, you know, some tech venture capitalist tech company, and I'm making $500
,000 a year, which would be really nice. And I still have some carry forward. That
carry forward does not get subject to the income test, just when I first claim it.
Because that's if you, so, because this, I had an example. This is more than 15
years ago. But a family adopted a sibling group of four, the year they sold the
family farm, no one told them about the adoption tax credit. It spiked their income
that year. Had they known they would have finalized in year one, had over $40 ,000
in credit, whatever they had left in year two, they sell the family farm, now they
have a higher tax bill, boom, they use some of that, or maybe use up all of it
to help with, you know, whatever they're paying for selling the family farm. So if
you've got something that's going to spike your income, try and not have it in the
year you're finalizing the adoption. Right. And that's where financial planning has
come into play because I've had clients that had deferred comp, you know, because
they knew that they were going to be finalizing. And if they, you know, had their
full income that year, they would be out of income range. And so they have deferred
comp, you know, or, you know, taken leave the last few months of the year to keep
them under. So, I mean, there is some tax planning that you can do, like Josh
suggested, you know, the family farm. If you know what's going to sell, you know,
you can generally move around some dates to get full benefit. Okay.
So Josh, what if we have a listener who didn't know anything about the adoption tax
credit before listening to this interview today, and they never claimed the adoption
tax credit in the past? What options are available to them? And is it something
that they can amend previous tax returns for? Yep, they can amend their returns.
The IRS generally does not let you get a refund more than three years back. So if
you you think about it, 2022 taxes were due April 15th, 2023. So three years later
is April 15th, 2026. So 2022 is open, but 2021 isn't.
Now, that doesn't mean you can't go back to 2021 or 2020.
You just can't get a refund those earlier years. But the hard part is the IRS in
a letter that I have will let you go back to those clothes.
who adopted in 2019 and, you know, and then again, I think in 2021.
And between the, she's going to miss out on some, but she should still be able to
get about 17 ,000 by going back, which is, I mean, it's not as good as getting,
you know, probably 28 ,000 or more that she would have otherwise gotten, but it's,
I'll take 17 ,000. If you need, I'll put in my baking account. No, just kidding.
And I'll do the work for you but so Becky it sounds to me like if somebody needs
to do an amendment like that they might be better served by working with an
experienced tax professional in that kind of a situation is that accurate or is that
something they can figure out themselves I think so just simply because amending
returns is a little more complicated than just doing a you know, fourth regular
return. And as I said before, if whoever you're dealing with, you know, says, well,
you don't qualify, please go somewhere else. Don't ever be afraid to ask questions.
And I do, there's times I do three and four years at a time to amend returns for
clients just simply because someone told them they didn't qualify when they actually
did. Like, you know, Josh said, you know, they may lose a year or two, but what
they gain, you know, and they carry forward is very much well worth amending your
tax return for. And unfortunately, that does happen a lot. It really does because a
lot of families either don't know, you know, about the adoption tax credit or were
misinformed. And that's really why, you know, we all do what we do is just to
inform families and to help families with this. And I would say the biggest
confusion on both sides of the equation is the special needs.
Some taxpayers know that it's special needs, but if I adopt a child that, let's say
I adopt Dugie Hauser from foster care, you know, he's 14. He qualifies because of
his age for that adoption subsidy. No one thinks of him as special needs, but he
is. So there's some education that needs to happen on the parent's side, but there
are still tax repairs who are like, oh, no, you can't get this credit unless you
have expenses. And it's like, read the instructions. Oh, the other thing is, if they
say, oh, they'll research it and they're going to charge you for research it, shop
around. And I'm glad, yeah, I'm glad Becky has reaffirmed that as an actual tax
professional because it ticks me off when I hear that from families.
same. That's great advice. Yeah. So advocate for yourselves, ask lots of questions.
Again, we'll link some resources in the show notes for you. Can I add one more
thing? If you're doing multiple years, this was, I was on a call 15 years ago or
so. But if you're doing multiple years, you have to assemble each tax year
separately, but you can put them all in the same envelope when you're sending them
in. So if anybody, you know, save yourself some time. But if you're also like if,
if I'm doing 2022, I'm amending 2020 and it's March of 26 and,
you know, there could be an issue with the mail getting there, send it certified
mail or registered mail with a return receipt, even if they never get that, that is
your proof that you sent it in a timely manner and it won't shut you out on
thousands of dollars. So those are a couple other tips in the amending realm.
Absolutely. And that proof of payment saved one client of mine because I always
recommend that you send it certified or registered mail. And that proof is what
saved a client of mine because the first initial letters were trying to say, well,
it wasn't in on time. And we have the proof in the And so, I mean, it really
does matter. That's fantastic advice. Thank you. Becky, you alluded to this a little
bit earlier, but I want to make sure we clarify and state all the extenuating stuff
around it. Does the adoption tax credit offset self -employment tax? It does this
year.
I'm so happy about it. I just can't even tell you because I have so many clients
that you know over the years that you know they have they're self -employed or
they're a pastor and a pastor has dual status when it comes to taxes and so 5 ,000
of that 17 280 is refundable this year and since that 5 ,000 is refundable it will
help cover self -employment tax Now that's only on the very first year,
the refundable portion does not carry to the next year. Just the non -refundable
portion carries to the next year. And that is for all adoptions after December 31st
of 2024. The IRS has made it very clear we cannot go back and amend to get the
refundable portion. But the good news is that 5 ,000 fundable is what is going to
help cover some self -employment tax, you know, for people. And then the remaining 12
,000 is going to help cover their federal tax liability. Becky,
how does the Secure Act impact us if we are claiming the adoption tax credit for
our 2025 taxes? The one thing that's really important now about the Secure Act is Q
-Bode. That's the qualified birth or adoption distribution in retirement.
Before Q -Bode, if you were under 59 and a half and you took money out of your
retirement, let's say that, you know, that last final push of expenses that you
needed some money and you would withdraw it out of your retirement, you would not
only pay the tax, but you would pay a 10 % penalty if you were under 59 .5. But
because of the Secure Act and Cubode, each spouse can withdraw up to $5 ,000 each,
each. And, of course, you'll have the tax on it, but you will not have the 10 %
early distribution penalty on a qualified retirement program. So that was a huge
benefit for so many families that I know. Being able, that has to be done.
I mean, generally what you would say is get an I -10 or an A -10, but the reality
is if you want to claim the child tax credit for that child, I would file an
extension and really pester the very understaffed Social Security Administration,
including getting members of Congress to help advocate and hope that you get that by
October 15th, which is the deadline for extensions. Because if you don't, you're
missing out on the child tax credit. And that's, that's the big,
I mean, that's, that's, that's, that's where the, the real loss is. I'd rather
families be able to get both. I'm actually hearing from several members of my
adoption community that anything related to social security numbers, name changes, et
cetera, is moving incredibly slowly. So if you don't have that social security number
for your child yet, start ringing the bell.
I don't finalize until after the tax, you know, due date and then, you know, all
that stuff. So I don't know. I mean, I know the private agencies generally are
aware of this. They just, I don't know how they're communicating this tax conundrum
to their clients. Yeah. I mean, the staffing issues are hitting at every level.
Yeah. Including the IRS. It's also the changing to having to have a Social Security
number starting in 2018, you know, by the time you file your taxes. Yep. Yep.
How does the adoption tax credit work in conjunction with employee adoption benefits?
Go for it, Becky.
Well, it is a wonderful added fringe benefit from many employers that have a
qualified adoption employer assistance program. The really only caveat of being able
is, you know, who doesn't want 17 ,280 of their income to be not taxed?
We all do, but when you have, your employer has a qualified adoption benefit
program, you can exclude up to 17 80 of your taxable income and claim the credit,
it just cannot be for the same expenses. So that's a really important part to
remember is you can claim both. The credit, when you claim the credit and you claim
the income exclusion, the income exclusion will come first and then the adoption tax
credit. That's something that's really important to remember because let's say, you
have 27 ,280 in expenses, you would qualify for the 17 -280 income exclusion and then
10 ,000 for the adoption tax credit. And if your employer does not have that
benefit, now is the time to ask them, go to your HR department and ask them,
do we have a qualified adoption benefit, you know, in our HR policies.
And if not, Dave Thomas Foundation has a really great toolkit on their website. It
is phenomenal. And they actually do not even have to, you know, a lot of times
some employers will give a benefit or a grant or, you know, reimbursement.
They don't have to. All they have to have to have is have that. And this also
qualifies for special needs adoptions and foster care. So it is a huge,
huge thing. And so go to your HR department and just ask the questions. That's
great. Yeah, we love recommending the Dave Thomas Foundation to people that are
looking to get that advocacy going in their workplace. So Let's move to the child
tax credit. One of you mentioned it a little bit ago. If you adopt and claim the
adoption tax credit, can you still claim the child tax credit? And how? Absolutely.
Yep. It's the software or your tax repairer. I'm not assuming many people are doing
it by hand, although I have talked to one in the last five years it has. But it
will generate a schedule 88, 12, it will look at your other credits,
and it will look at including the adoption tax credit, and it will figure out how
much you take, if you have enough earned income, how much of the child tax credit
will split to become the additional child tax credit, how much will remain to go
first in reducing your tax liability. But the will take care of it.
It's, it's, families do not want to do this by hand.
No. And again, this is where it's really important to have that social security
number established for your child. That is correct. You have to have the social
security number by the due date of the return in order to claim the child tax
credit. And one of the benefits also is the child tax credit is now 2 $200,
$2 ,200, and $1 ,700 of that is refundable. So once your tax liability is met with,
you know, the non -refundable portion of the child tax credit and the non -refundable
portion of the adoption tax credit, you are going to have a quite substantially
larger refund because of that. Fantastic. That's a great way to maximize those
benefits. What documentation, if any, do you need to send to the IRS when you're
claiming the adoption tax credit? You do not need to send any documentation in.
Everything is electronically filed now. Like I said, with that form 8839, and then
it goes to Schedule 3, and then it goes to second page of the 1040. And so what
happens is in the event that the IRS sends you a letter, don't panic,
the documentation that you want to keep in an envelope and just mark an IRS
documentation is you need to keep the final judgment of adoption or decree of
adoption, certificate of adoption, whatever that county or state chooses to call it,
you will need, if it's foster care, you will need a sign and dated copy of the
subsidy agreement. And then for private, domestic, and international, you need to keep
a good copy of all of your receipts. For international, I highly recommend you get
copies when you come back home because those thermal receipts often fade. And if,
of course, don't ever send the originals. Don't ever send the originals. Don't ever
send the originals. But when you send those things, did I get that? If you have to
send that document to that, you have to send that document
So, like I said, final judgment of adoption, it has to be the signed and dated
version. For foster care, you need the signed and dated subsidy agreement.
For domestic and for international, you need a copy of your home study or home
placement, and then you need a copy of all of your expenses. And keep those in
that envelope, and that way you know right where they are in the event that you
need it. And I'll just add a couple of things. For international adoptions,
probably need the translation of the adoption order in country. Is that proof of
adoption? With receipts, don't stress over the little things. If your agency fees,
attorney fees and all that are getting you way over the amount that you need to
document, that little slip for dumplings you got in China, it's like $7 worth,
you don't need to find that if that's just going to add to the total but not
change the amount that you get. So if you can get there with the big things, focus
on those and then you don't have to sweat the small things. Oh, the other thing is
right now they're telling us that we don't have to do this, but in 2010, when it
was first fully refundable, they didn't ask for the documentation and then they asked
everybody for the document or a lot of people for the documentation. So even
though...
But you don't need to panic. You're less likely to panic if you've already heard
this and know that it's how it operated in the past and it's an annoyingly normal
thing. Right.
It still feels shocking. Yes. I get that.
So one of you just mentioned that the adoption tax credit used to be fully
refundable. And now this partial refundability is great news after years of it not
being at all. Just kind of give us your take. Do you think it's going to remain
partial for a long time? Or do you think that it's going to be able to be
returned to fully refundable or returned to not refundable at all,
kind of given the landscape? So what I've learned, because I've been involved with
the very interestingly named Adoption Tax Credit Working Group that has been
advocating for the past 15 years. It's tax credits or a lot of tax stuff either
has expiration dates or not. When it was refundable before, it had an expiration
date. It didn't get renewed. This does not have an expiration date. So unless
Congress makes an act to change it, it's just on cruise control at this point.
Okay. That's great news. That's great news. Except we can still fight to make it
better. You know, kind of like Andy Dufrain. Yeah. Andy Dufrain and Shawshank
Redemption. It's like once he got some books, he started asking for twice as much
money for his little library at the jail. Yeah. We got a good taste.
Let's keep it coming back. Yes. That's a great metaphor. Becky, what's your sense?
Do you have a sense of that?
Well, since, well, last week and this week, we are in tax school. So some of the
provisions will be coming to an end in 28 and 29. I'm really hoping because we are
also a part of the Adoption Tax Credit Working Group, and I'm thankful for all the
advocacy for our families. So, I mean, I look for the 5 ,000 to stay,
and I think it's kind of going to be a wait and see. They're going to wait and
see how this affects the tax returns, how many people actually claim,
you know, the adoption tax credit and how it's used going forth. I think all of
those things are going to matter. I think advocacy is like number one.
The more that you contact your representatives and senators and tell them,
hey, this is, we adopted, this is, you know, going to help us so much more because
we're self -employed, we're a pastor, we are, you know, whatever the case may be,
that I think the more advocacy we use and to help get it fully refundable again,
it would be great. We just, we just got to keep pushing and keep advocating. But
as of right now, I like the 5 ,000. Obviously, I wish the full thing was refundable
again because it helps more, you know, low income families. But I look for this
part to be around for a while, for the 5 ,000 and then the rest non -refundable. I
look for that to be around a while. Great. Great. So if people want to advocate
for increased refundability or full refundability, where would you direct them, Becky?
Adoptiontaxcredit .org is a wonderful website. It will take you to a link right
straight to your representatives and your senators and how to contact them. If you
don't know who your congressmen or congresswomen are, and it will help you get in
contact with them. You can call them. You can email them. You can write them a
letter. And I recommend all of the above. Yep. And it really only takes a couple
minutes. I've done it myself. Actually, three years running, I've done it. Yes, I
have to. To speak up. And it does not take much time or effort at all to make a
huge impact for really our nation's future. And what's really nice is this is
bipartisan. And it always has a way. Oh, yes. Yeah. That's a refreshing part about
this entire conversation is that it is a bipartisan movement because they are all
recognizing how valuable it is for the future of America's kids.
So, well, guys, we did it. Another tax credit show in the books.
Thanks so much for your time. Thanks for your expertise. Thanks for sharing real
life explanations and illustrations for how to do this. for somebody like me who's a
tax newbie. That's not my department in this house.
I really appreciate the information and the expertise. So we will link contact
information for Josh and Becky in the show notes. And thanks guys for your time and
for joining us today. You're very welcome.