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How Has the Adoption Tax Credit Changed for 2011?

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Question: How Has the Adoption Tax Credit Changed for 2011?

The bill President Barack Obama signed into law on March 30, 2010, HR 4872, the Health Care and Education Reconciliation Act of 2010, brought about changes not only to the health care system, but to a few tax laws, including the adoption tax credit. This law brought about changes to the adoption tax credit in 2010, and those changes continue through 2011.

Answer: Many of the changes for the adoption tax credit remain the same as in 2010, but here are a few points of change to the 2011 adoption tax credit which include:
  • Adoption Credit Refundable Once Again The adoption tax credit became refundable in 2010 and will remain so through 2011. Before the change to the adoption tax credit law, the adoption credit helped pay for tax liabilities. Meaning that the amount paid out to adopt an eligible child was subtracted from the family's tax liability. Now, even if an adoptive family does not owe on taxes, they will receive the adoption tax credit as a refund, even if they paid nothing to adopt a child, like in the case of a foster care adoption.

  • Tax Credit Amount for 2011 Once again the maximum adoption credit has been increased from $13,170 to $13,360 per child adopted in 2011. This amount is supposed to remain increased through 2012.

  • Adoptive Parent Income Adoptive parents hoping to claim the 2011 adoption tax credit must have an income that falls below the federal modified adjusted gross income of $185,210 in order to receive the full tax credit or refund. An adoptive family that makes more than the federal modified adjusted gross income of $225,210 will not be eligible to receive the adoption tax credit. Families with incomes in between these two figures will see their adoption tax credit reduced.

  • Special Needs Adoptions Adoptive parents can claim the full adoption tax credit, if they adopted a child with special needs in 2011, even if they did not have any adoption expenses - like a foster care adoption.

  • Other Adoptions Adoptive parents of children without special needs can claim the adoption tax credit on qualified adoption expenses which were necessary in order to complete the adoption, as long as those expenses were not reimbursed by anyone else, such as an employer. So, if the adoption expenses did not exceed the amount of the adoption credit, then the adoptive parents may receive a refund. If expenses exceed the amount of the adoption tax credit, the maximum credit to be claimed is $13,360 per child in 2011.

  • Rolling Over Past Adoption Credits Please know that any amount of the adoption tax credit from previous years was above the adoptive family's tax liability, that amount can be carried over for five years to be used in subsequent tax years to cover future tax liabilities. The great news for adoptive families according to Daniel L. Tenney, Senior Tax Advisor V of H&R Block, those past adoption tax credits can be refunded back to the adoptive family in 2011.

    "The roll forward of the adoption tax credit can be confusing as most people (and a lot of misinformed preparers or Certified Public Accountants) believe that after three years the tax year is closed and cannot be amended or even initially filed outside this time period. That is incorrect. While you will not be able to claim any additional monies for those "closed years" you can amend or initially file to roll forward a tax credit such as the adoption credit which rolls forward for five years." ~ Daniel L. Tenney

    This is fantastic news for adoptive families! Consider utilizing the funds received from the adoption tax credit as a way to build a college fund for your children, pay off your mortgage, or seek out supports needed to parent special needs.

  • Adoption Tax Credit and the Self Employed According to Tenney, for the years 2010 and 2011 the refundable portion of the adoption tax credit can be used to offset the self-employment taxes. For years when the adoption credit was not refundable it could only be used to reduce tax liability and not self-employment taxes. Tenney suggests that for the years 2010 and 2011 think of the refundable adoption tax credit as money you had withheld from your paycheck or as estimated taxes you paid.

Remember that in order to file for the adoption tax credit, you will need to gather numerous documents to prove your family's eligibility.

Read also: How to Claim the 2011 Adoption Tax Credit.

SOURCES:
Adoption Credit and Adoption Assistance Programs for 2010 and 2011

Interview with Daniel L. Tenney of H&R Block
Mr. Tenney is available to work with adoptive families in all 50 states and can work over the phone, through the internet and even has Skype capability. Feel free to contact him with any of your adoption tax credit questions at daniel.tenney@tax.hrblock.com

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