I am richly blessed. I have 4 adopted children. Each was adopted in infancy, and the last two were identical twin girls! All of my kids are all adults now, and I am so proud of each of them. I tried to train my girls about the virtues of staying at home and caring for me when I retire, but that effort was entirely in vain. They are all independent and busy with their own lives!
I have been frequently asked over the years about whether a person can love an adopted child as much as you would love a natural birth child. Few women ever ask this question, but I do hear it asked from time to time by men. Not having a natural birth child, I guess it’s impossible for me to say; however, I cannot imagine loving a child more than I love each of my children. The DNA connection just doesn’t mean much to me.
And believe or not, our federal government actually encourages people to adopt children through tax policy. Below are described some of the ways in which government tax policy encourages adoption.
- Adoption Tax Credit
There is now a federal tax credit to help offset the cost of adopting a child. In 2017, adopting parents can reduce their federal tax liability by $13,570. This is not a deduction, but a credit, i.e. a dollar-for-dollar reduction in the tax due to the U.S.Treasury.
The costs that qualify for the credit are those that are “reasonable and necessary” for adoption. Examples include such items as attorney’s fees, court costs, adoption fees (these can be substantial), and travel costs including food and lodging while away from home, etc.
Anyone familiar with adoption knows that not every effort to adopt is successful. The tax credit is available for those expenses even if the adoption is unsuccessful . Also, expenses for adopting foreign children qualify for the credit, but with regard to foreign adoptions the adoption must be successful.
Special rules apply to special needs children. Those who adopt children who are U.S. citizens with specific needs can qualify for the full credit regardless if they actually incur all of those expenses.
- Employer Assistance
Many of us are familiar with flexible spending accounts. They are set up by businesses for employees to be able to deduct medical expenses free of the 10% AGI restriction. We can deduct up to $2,600 in 2017.
Similarly, the federal tax code now allows an employer to establish an “adoption” FSA. Employees can deduct up to $13,750 to these plans, again free of the AGI limitation. This amount is available for EACH child adopted.
- Other Tax Benefits
An adopted child can also qualify for other tax benefits. For example, he or she can still qualify as a dependent even if the adoption is not final (assuming you have provided more than half of their support). The same holds true for the child tax credit.
- Limitations
There are several limitations on the tax credit and income exclusion that one must adhere to:
- the child must generally be under age 18,
- expenses that arepaid to adopt a new spouse’s child do not qualify.
- The tax benefits are phased out if our adjusted gross income exceeds $174,730.
I support the efforts of Congress in the enactment of these special adoption tax laws, and I hope they’ll continue to look at an enhancement of these laws. It’s just good public policy, and we ought to support legislators in their efforts to enhance these laws. While the cost of adoption will far exceed these tax benefits, and we know that the cost of raising any child certainly does, it simply makes good sense to lessen the financial burden of persons who are willing to adopt children. It’s good for families and good for children.
David Leeper is a Board Certified federal tax attorney with 38 years experience. He can be reached at 915-581-8748 or by email at leepertaxlawelpaso@gmail.com