In the past the adoption tax credit was not refundable, and was for adoptive parents of children from foster care with special needs, even if they did not have any adoption expenses. Other types of adoptions with qualified adoption expenses could also benefit from the adoption tax credit as a way to offset the cost of the adoption.
However, the adoption tax credit became refundable in 2010 and will remain refundable in 2011. An adoptive family may enjoy a refund, even if they did not have any adoption expenses. Also, don't forget that any unused adoption tax credits can roll forward for five years and still be refunded in 2010 and 2011.
In order to receive a full refund or credit from the adoption tax credit in 2010 and 2011, adoptive families must have adopted a child from foster care that can be defined as having special needs. If you completed an adoption, but it was not for a special needs child see - Claiming the 2011 Adoption Tax Credit
In simple terms a child adopted from the United States foster care system is considered to have special needs if that child receives an adoption subsidy or other adoption assistance benefits. Each state has guidelines that they follow regarding what they determine to mean "special needs" and if that child will be receiving an adoption subsidy after an adoption is finalized. When it comes to foster care adoptions, children may be deemed special needs if they are older, of a minority race, or belong to a large sibling group. These may not seem like the typical characteristics that make for a special need diagnosis, but they do make finding adoptive homes more difficult, thus the child or children special needs. Other common special needs conditions and diagnoses for children in foster care include:
- serious medical conditions
- emotional and behavioral disorders
- history of abuse or neglect
- medical or genetic risk due to familial mental illness or parental substance abuse
The tax law determines that the child must meet all three of the following characteristics in order for that child to receive an adoption tax credit in 2010 and 2011:
If your newly adopted child meets the above guidelines and is receiving assistance from the state in the form of an adoption subsidy, than your child's adoption will probably qualify for the adoption tax credit as well.
- "The child is a United States citizen or resident,
- a state determines that the child cannot or should not be returned to his or her parent's home, and
- a state determines that the child probably will not be adopted unless assistance is provided."