“This is the critical time to save the adoption tax credit. If it is not passed before the end of the year, the adoption tax credit will not be available to assist families wanting to adopt. Without the help of the tax credit, many families will find it impossible to adopt and countless children waiting for families will continue to wait. Please take a moment during National Adoption Month to save the Adoption Tax Credit — and the possibility for a waiting child to have a loving family.”
Why is the adoption tax credit important?
The adoption tax credit helps tens of thousands of children every year find a permanent, loving family. By refunding some of the adoption expenses families pay, it makes international and domestic adoptions more affordable, ensuring that more children have the opportunity to have a family and that families at all income levels can offer children a loving home. The cost of an adoption should not be a barrier that prevents children from finding loving families.
Bottom line, the adoption tax credit makes adoption more possible for the more than 100,000 children in U.S. foster care, and the millions of children worldwide who need a family of their own.
What is the status of the adoption tax credit?
For calendar year 2012, the adoption tax credit has a maximum credit of $12,650 (less than in 2010 or 2011). It applies to all types of adoption—from foster care, internationally, or privately from the U.S.—other than stepparent adoptions. The current adoption tax credit is set to expire, or “sunset” on December 31, 2012. As of January 1, 2013, the adoption tax credit as we know it will be gone; the benefit that will remain will be greatly reduced and restrictive.
Although the adoption tax credit was refundable for tax years 2010 and 2011, it is not refundable for 2012. This means that only families who have tax liability (meaning they pay federal income tax) will be able to benefit. Many families started the adoption process in 2011 or even earlier thinking they would be able to claim the benefit, but because of court or other delays may not get the support they need.
What does refundable mean? Why does it matter?
When a tax credit is refundable, taxpayers can benefit from the credit even if the credit is larger than what they pay in federal income tax. A nonrefundable credit is one in which taxpayers receive a refund of federal income taxes, but only up to the amount of taxes they otherwise had due. Here’s a rough example: A family has $5,000 in federal income taxes withheld from their paychecks during the year. When they do their taxes, they are due a refund of $4,000. The $1,000 the IRS keeps is their tax liability. If they adopted with expenses of $8,000, and the credit was not refundable, they would receive a maximum of $1,000 in adoption tax credit for the year (meaning that they have $5,000 instead of $4,000 refunded to them). If the credit was fully refundable, they would receive a refund of $12,000—their $4,000 regular refund plus the full $8,000 in their adoption expenses.
Families who have lower or moderate incomes will benefit little or not at all if the adoption tax credit is not refundable. In 2010, when the adoption tax credit became refundable, almost 80 percent of families who filed for the credit benefited from the “refundable” feature of the adoption tax credit.
What happens if no action is taken?
Far fewer children and their adoptive families will benefit. In 2012, the adoption tax credit is not refundable, so many lower and moderate income families will not benefit or will receive only a portion of their credit. After 2012, the credit will apply only to domestic special needs adoptions where the family has qualified adoption expenses. Most of the adoptions from foster care do not have any upfront expenses, so very few families who adopt from foster care will receive any refund. Those adopting internationally or privately will not receive a benefit at all.
What can you do to help save the adoption tax credit?
The best way to support efforts to make the adoption tax credit permanent and refundable is to write, email, phone, or meet with your Congressional delegation to let your Representatives in the House know that they want them to cosponsor H.R. 4373 or, for Senators, S. 3616. Go to www.house.gov and towww.senate.gov to find your member of Congress and your Senators and how to contact them. Or click here for an Advocacy Kit created by the National Council For Adoption.
Personal stories of how the adoption tax credit has helped or will help their constituents become parents are the best form of lobbying on this issue and the more members of Congress who hear from their constituents about the need to continue the adoption tax credit the better. Voices from within the international adoption community are strongly needed! Contact your representatives today!!
Information provided by the Adoption Tax Credit Working Group. Click here to learn more: