About the Adoption Credit
Under The Internal Revenue Code Section 36C, an individual taxpayer may claim an adoption credit for qualified adoption expenses paid or incurred by the taxpayer. The total qualified adoption expenses that may be claimed as a credit for all taxable years is limited to $10,000 adjusted for inflation (the 2013 amount is $12,970). The amount of the credit is reduced proportionately if the taxpayer’s modified Adjusted Gross Income is between $194,580 to 234,580. The credit is nonrefundable, if a taxpayer owes no federal taxes, he or she cannot receive a refund; however the taxpayer can carry the balance of the credit forward for up to five years. A non-refundable credit can reduce the amount of tax the taxpayer owes to zero, but not below. On the other hand, a refundable tax credit can reduce the taxpayers to zero and the IRS refunds remaining balance to the taxpayer.
Same Sex Adoptions and the Adoption Tax Credit
Both same sex partners (if each is an adoptive parent) may qualify for the adoption credit on the amount of qualified adoption expenses paid or incurred for the adoption. The same sex partners may not both claim credit for the same qualified adoption expenses and neither partner can claim more than the amount that he or she incurred. If two same sex partners each paid qualified adoption expenses, to adopt the same child and those expenses exceed the $12,970, the maximum credit available is still $12,970. The partners may allocate this amount between them any way they agree, but the amount allocated may not be more than the amount paid or incurred.
Traditionally, qualified adoption expenses do not include the cost of adopting a spouse’s child. If a couple is in dire need of the tax credit, it may be beneficial to postpone marriage until the potential spouse’s child is legally adopted. In addition, the law specifies that the adoption credit is not available to the biological parent, so the credit should be claimed by the non-biological parent. In cases like this, it is extremely important that the non-biological parent be able to prove that he or she is the one who paid for it – for example, by using separate banking accounts and credit cards. (Click here for additional IRS answers to FAQ’s regarding same-sex adoption credits).
Now that same sex marriages are recognized under both federal and Pennsylvania law, a married couple can claim the credit by filing a joint tax return as long as neither spouse is a biological parent and the child is adopted by both parties after the marriage.
For more information on the adoption tax credit or tax return preparation in general, please contact Lauren Sweeney in our Pittsburgh office at (412)-562-1530. Lauren is a tax specialist with over 8 year preparing both simple and complex individual income tax returns.