Late last year, a controversy surrounding the adoption tax credit caught the eye of many whose lives have been touched by adoption. There was a concern that the proposed tax legislation would not include provisions for the adoption tax credit. Thanks to advocates, adoptive families and professionals who are invested in adoption, the demand to save the adoption tax credit was successful.
In 1994, the Contract for America document during the election campaign included a proposal for a so-called Family Reinforcement Act. This act included language regarding incentives for adoption. President Bill Clinton endorsed the adoption tax credit in a letter sent to Speaker of the House, Newt Gingrich. He stated that tax credit would ease the cost of adoption for families. Because of this, the Small Business Job Protection Act of 1996 created an adoption tax credit of an initial $5,000 tax credit
The tax credit is an incentive to encourage families to adopt children, especially children with special needs. It offers a credit for qualified adoption expenses incurred by the adoptive family. Adoptive families should retain documentation of all expenses incurred during the adoption process, including legal fees.
Parents who adopt children with special needs can claim the full tax credit. While each state may vary on what their defining factors are, generally, a child is considered special needs with one or more factors are involved: ethnic or racial background, age, membership in a sibling group, medical physical or emotional disabilities, risk of physical, mental or emotional disabilities based on birth family history or any condition that makes it more difficult to find an adoptive family. Children and youth adopted out of the US foster care system are eligible for the special needs tax credit.
It is important to remember that while this tax credit is available and has served as a benefit for families, it is not the reason people adopt children. Adoptive families are a tremendous resource for children in need of a place to call home. The adoption tax credit is a vital part of supporting, encouraging, and advocating for adoption of children with special needs.