Legislation that averted the "fiscal cliff" also saved an expiring tax credit - and finally made it permanent - for families who adopt.
Legislation that averted the “fiscal cliff” also saved an expiring tax credit — and finally made it permanent — for families who adopt.
Advocates lobbied hard to preserve the $10,000 federal adoption-tax credit, which is scaled for inflation and was worth a maximum of $12,650 for 2012. But they did not succeed in making the credit refundable for low- and middle-income families whose tax liability is less than the credit.
That means adoptive parents can’t get back the difference, as they could for the 2010 and 2011 tax years.
“It’s basically good news,” said Rita Soronen, president and CEO of the Columbus-based Dave Thomas Foundation for Adoption. “The tax credit passed, and it was made permanent. But refundability is off the table now.”
Soronen said the result is that some low-income adoptive families will benefit little, if it all, from the credit. “And frankly, those are the families who adopt out of foster care,” she said. “Refundability was critical, especially if they had no tax liability.”
According to Internal Revenue Service data for 2010, there were about 97,000 adoption tax-credit filings nationwide. About 30 percent of the children adopted from foster care live in households with incomes between 101 and 200 percent of the poverty level, Soronen said. That compares with about 21 percent of all children.
Children adopted from foster care also are less likely to live in wealthier homes. About 21 percent of those adopted from foster care live in households with incomes 400 percent or more of the poverty level, compared with 30 percent of all children and about 58 percent of children adopted internationally.
“Refundability will just have to be an ongoing conversation,” Soronen said.
But families who adopt special-needs children, a category that includes the vast majority of foster kids, won’t have to document their adoption-related expenses for the credit. Those families also can claim the maximum credit for a special-needs child, regardless of their expenses, if they pay enough in taxes.
All families, whether they adopt from foster care, privately or internationally, can carry their credit forward to other tax years if they don’t have enough tax liability to use it all at once.
Megan Lindsey of the National Council for Adoption said the credit is “an important layer of support for families who adopt.”
Families with incomes under $150,000 are eligible for the full credit, which gradually phases out for higher incomes.The adoption credit first went into effect in 1997 and had been extended but not made permanent until now.