The legislation to avoid the fiscal cliff (the American Taxpayer Relief Act of 2012, signed into law on January 2) included a provision that made the adoption tax credit permanent. Unfortunately it did not make the adoption credit refundable, so it will only benefit those adoptive families who have federal income tax liability.
For 2013, we believe the maximum adoption credit and exclusion will be slightly higher than the 2012 maximum of $12,650. The credit will begin to phase out for families with modified adjusted gross incomes above a certain level (around $190,000) and the credit will go away completely for those with incomes around $230,000. (Exact numbers for the maximum credit and income guidelines have yet to be released.)
For 2013 and beyond, the credit will remain flat for special needs adoptions, meaning that those who adopt children from the U.S. who receive adoption assistance/adoption subsidy benefits can claim the maximum credit regardless of their expenses. For other adoptions (except for step-parent adoptions), parents can claim the credit based on their qualified adoption expenses.
NACAC is deeply disappointed Congress did not make the adoption tax credit refundable for 2012 or future years, and will continue to advocate for refundability in the future. We will keep you posted on these advocacy efforts.
Even though the credit isn’t refundable for 2012, we encourage those who adopted in 2012 to submit a Form 8839 with their 2012 taxes even if they do not have tax liability. Although they will not receive an adoption credit refund with their 2012 taxes, the credit can be carried forward up to five additional years. Families might benefit later if either their tax situation changes or the credit is made refundable in the future, and then wouldn’t have to amend their 2012 taxes.
Source: NACAC January 3rd, 2012 newsletter. For more information regarding the adoption credit and more, visit the NACAC website here.