¿Que Tal? - August 2001
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New Adoption Tax Credit

"I'm especially pleased by what these reforms will do for families that adopt children. Adoptive parents have a special calling, giving a loving home to children who otherwise would have none. The new law will double the maximum adoption tax credit to $10,000, and make the credit permanent. And regardless of their expenses, parents who adopt children with special needs will be able to claim this tax credit in the year the adoption is completed."
- George W. Bush, June 2, 2001

In January 1997, adoptive families became eligible for a tax credit for adoption-related expenses. This up-to-$5,000 credit per child for international adoptions is in effect through December 2001. The credit is phased out for taxpayers with adjusted gross incomes between $75,000 and $115,000.

For tax years beginning after 2001, new legislation extends the adoption credit. It increases the credit to $10,000 per eligible child, including special needs children. The credit is phased out for taxpapers with modified adjusted gross incomes between $150,000 and $190,000. Under the bill, the credit is subtracted directly from the amount of taxes an adopting couple owes. In addition, the legislation would permit an employee to exclude from gross income money an employer pays for covering adoption expenses.

Qualified expenses paid or incurred in tax years beginning before 2002 are subject to the present-law dollar limits.

After 2002, the $10,000 credit is available for special needs adoptions in the year the adoption becomes finalized regardless of whether the taxpayer has qualified adoption expenses.