2011 Adoption Expenses

Taxpayers with certain eligible adoption expenses can benefit at tax time. They can claim either a refundable tax credit or, if their adoption expenses are reimbursed by their employer, an income exclusion for the reimbursement. The income exclusion is only available if their employer maintains an adoption assistance program. The credit and exclusion are subject to a dollar limitation and phase-out for taxpayers whose income exceeds certain thresholds.

For 2011, taxpayers can claim a refundable tax credit for up to $13,360 of qualifying adoption expenses. (A refundable credit can create a tax refund in excess of taxes paid or withheld.) This is not an annual limitation; instead, it applies to the adoption of each child and is cumulative (for that child) over all tax years. When applying the limitation, adoption expenses incurred in an unsuccessful attempt to adopt an eligible child are included with those of the first subsequent successful adoption. The limitation is the same for both married and unmarried taxpayers, but married couples must file a joint return to claim the credit.

The credit for an adoption involving a child with special needs that becomes final in the tax year is automatically $13,360, regardless of the actual amount (even if less than $13,360) of qualifying adoption expenses incurred.