Posted by Carmen Garcia

Adoption Tax Credit for 2020

Adoption Tax Credit for 2020

The adoption credit is a nonrefundable tax credit, which means that the tax credit amount is limited to taxes due on your 2020 income tax return. Any additional credit value can be extended for up to five years. For example, suppose your credit is $ 2,000, and you owe $ 1,500 in taxes for 2020; you can apply the remaining $500 to your 2021 tax return. In a 2020 tax return, the maximum credit amount adoption tax is $14,300 per eligible child. An eligible child is under 18 or is physically or mentally unable to care for themselves.

The tax credit is intended to help parents cover the costs of adopting a child under 18 (including a child with special needs). 

You may be qualified for the adoption tax credit if one or more of the following statements are true:

  • If the adoption becomes permanent, you can claim the credit for a foreign resident or non-US citizen. If the child has unique needs, and the state decides that the child would not have been adopted without assistance, then you may be entitled to a higher tax credit.

  • In some cases, a registered domestic partner may pay adoption expenses. For instance, if both parents live in a state that allows a second parent or same-sex parent to adopt the partner's child, this may also be considered an eligible expense.

  • The child is a US citizen or resident (or US citizen with special needs) on or before December 31 of the fiscal year.

  • You adopted an American child with special needs, and the adoption became final in 2020. You can apply for credit even if you or your employer have not paid any adoption expenses.

  • You have a deferred adoption credit from the previous year.

  • You paid the adoption costs related to adopting a foreign child in 2020 or a year earlier, and the adoption became final in 2020

  • You paid the eligible adoption expenses related to adopting an American child (including children with special needs) in 2019. The adoption was not finalized at the end of 2019 or 2020, and adoption became complete by 2020.


Qualified Adoption Expenses

The qualification expenses include the following:

  • Adoption rate

  • Court costs

  • Legal fees

  • Other expenses related to the adoption of an eligible child

  • Travel expenses (including meals and accommodation away from home)

Expenses do not include:

  • Any expenses received under a federal, state, or local program.

  • Those permitted as a deduction or credit under any other federal income tax law or other provision.

  • Those reimbursed by your employer

  • Those linked to the adoption of your spouse's child

  • Those who carry out a surrogate arrangement

  • Those who violate federal or state laws

Expenses previously reimbursed by the employer cannot be taken into account on credit. However, certain eligible expenses paid by your employer may be excluded from your taxable income.

You can also apply for adoption credit for most domestic or foreign adoptions. However, the timing regulation for which these expenses can be claimed vary between domestic and foreign adoptions:

  • Domestic adoption: Eligible adoption expenses paid before the year in which the adoption becomes final are allowed as a credit for the fiscal year following the year of payment (even if the adoption is never finished).

  • Foreign adoption: Eligible adoption expenses paid before and during the year are allowed as a credit for the year in which the adoption is finalized.


The 2020 Adoption Credit Value

For fiscal 2019, the maximum adoption credit was $ 14,080 per child. 

For the 2020 fiscal year, the maximum adoption credit is $14,300 per child. The credit for eligible adoption expenses is subject to a dollar limit and an income limit. The income cap is based on your modified adjusted gross income (AGI). If your income exceeds the AGI limit, it may be reduced by a certain percentage or, if you exceed the maximum limit, the credit may be eliminated. The amount begins to be eliminated if the adjusted gross income exceeds $ 214,520 and is phased out if the income is $ 254,520 or more.

Due to the Affordable Care Act, the income limits for the adoption credit will be modified for inflation. You can accumulate any unused portion of your credit and renew it to reduce taxes for up to 5 years.


How to claim the adoption tax credit

The adoption tax credit can be claimed in an income tax return by any qualified taxpayer with a qualifying widow(er), married filing jointly, or head of the household status. If you are married, you must submit a joint declaration to claim the adoption credit. If you filed your return using the married filing separately status, you could only claim a credit if you change your claim and change it to married filing jointly status in the years you want to claim the credit.

Also due to the Affordable Care Act's increased documentation requirements, some taxpayers filing the claim may have to file via mail. You must include one or more documents relating to the adoption in your mailed tax return.


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Carmen Garcia
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