Adoption Credit and the Health Care Bill

Recent , such as the earthquake that devastated Haiti, have impassioned those who see aption as a way to help children escape danger and uncertainty.  At the same , however, the cost of apting (often upwards of $20-30,000) combined with the reality of economic recession and caused many who would like to apt to put their plans on hold. 

Aspiring parents: take heart.  The Health Care Act (more exactly the Patient Protection and Affordability Act) has made some meaningful changes to the aption expense credit.  Today, we will highlight these changes and discuss the basics of the aption credit.  Perhaps, once made aware of the aption credit and these cost-saving changes, you will reconr the gift of aption.

The Aption Expense Credit and Exclusion reimburses aptive parents for qualified aption expenses and allows employer-provided aption assistance to be excluded from .  Prior to the Health Care Act, the credit/exclusion was limited to $12,170 (2010).  The credit was also nonrefundable – meaning it would reduce your tax liability but would not generate a refund.  Any unused credit could be carried over to the following year but would be lost if not used within five years.  In addition, the credit was scheduled to be eliminated entirely at the end of 2010 (with the exception of a $6,000 credit for special needs children, discussed below). 

The Health Care Act made substantial changes to the aption credit – changes that will help many financially-stred parents apt.  Effective January 1st, 2010 the aption credit and exclusion has increased to $13,170 and the credit is made refundable – meaning you can receive the credit regardless of whether you owe any tax.  The Health Care Act also extended this “refundable” form of the aption credit through 2011.

The “Aption Credit” actually has two parts, each of which is governed by a separate section of the tax code.  These parts are called the Aption Credit and the Aption Fringe Benefit Exclusion.  The aption credit and fringe benefit exclusion are exclusive of one another.  This means that an aptive fly can claim the $13,170 credit (2010) and also exclude up to $13,170 in employer assistance for the same aption, allowing apting parents to offset up to $26,340 for each qualifying aption.  Both the credit and exclusion, however, are not allowed for the same expenses. 

To qualify for the credit/exclusion, the aptive child must be an “Eligible Child” or a “Special Needs Child”.  An “eligible child” is either under the age of eighteen or a person (any age) who is physically or mentally unable to take care of themselves.  A “special needs child” is one who meets the following three criteria: First, be a citizen or a rent of the United States or possession.  Second, a state agency must determine that the child should not or cannot be returned to their parent’s home.  And finally, the state must also determine that a specific factor (such as the child’s age, ethnic background, medical condition or handicap) makes aption unlikely without assistance.  The primary difference between apting an eligible child or a special needs child (as it pertains to the aption credit/exclusion) is that the credit for an “eligible child” is limited to qualified expenses actually spent on the aption.  The credit for apting a “special needs child,” on the other hand, is the full credit amount ($13,170) regardless of the amount actually spent.

Qualified aption expenses include aption fees, attorney fees, travel expenses and re-aption fees for a foreign child.  They not include expenses paid or reimbursed by government programs, costs associated with surrogate parenting, or the cost of step-parent aptions.  If the aption is a “foreign aption” the credit/exclusion is only allowed if the aption becomes final.  If the child is a citizen or rent the credit is allowed whether or not the aption is successful.  The credit/exclusion limit is a per-child/aption limit, not an annual limit. 

In today’s column we have discussed the basics of and some major changes to the aption credit.  Unfortunately, we have not had to discuss many of the credit’s complexities including; the -line for claiming the credit, limits on filing status, and limitations for those who can claim the credit.  As always, not rely on this information as a basis to make any financial s.  Contact a tax professional.

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