Adoption Tax Credit Made Permanent, Non-Refundable

Congress made the Adoption Tax Credit permanent last week as part of the legislation to avoid the so-called “fiscal cliff.” President Obama signed the American Taxpayer Relief Act of 2012 last Wednesday, January 2nd, preventing the Adoption Tax Credit from expiring. The legislation allows the credit to scale up with inflation.
Adoption Tax Credit

Here are the highlights of the Adoption Tax Credit.

  • In 2012, the tax credit was $12,650 for each adopted child. In 2013, experts anticipate the credit to be approximately $12,770, but the IRS has not yet announced the exact amount. In 2013 the maximum credit allowable is $12,970 for each child.
  • In 2012, to qualify for the full credit, a family’s income must be $189,710 or less. The legislation gradually lowers the amount of the credit for families with incomes between $189,711 and $229,710. Families with adjusted gross incomes above $229,710 may not claim the credit in 2012. The IRS has not yet set the income criteria for 2013, but experts expect it will be a modest increase from the 2012 levels. 
  • In 2013, phaseouts apply for taxpayers with modified adjusted gross income over $194,580, and is completely phased out at $234,580.
  • Families adopting special needs children will continue to receive the credit as a “flat benefit”, meaning they will receive the full tax credit without needing to document adoption expenses.

That’s the good news. The bad news is that the credit is no longer refundable. This means that it only works to offset tax liability, or what you owe to the government. Removing the refundable aspect of the tax credit has the largest impact on low and middle-income families who do not have the large tax liabilities that higher income families do. Fortunately, any unused credit can be carried forward and applies to future tax liability.

“The Independent Adoption Center lauds Congress and President Obama for providing a permanent adoption tax credit for adoptive families,” stated Ann Wrixon, Executive Director of The Independent Adoption Center, “This is truly worthy legislation that every American supports. We hope in the future that Congress will make the credit refundable so that it also benefits the many middle and low-income adoptive families in our community.”


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