Same-Sex Adoption Tax Credit

Now that you can't use this loophole, you can use the federal adoption tax credit for adoption expenses. This article focuses on the unique issues of same-sex couples and the adoption tax credit.

How the Adoption Tax Credit Works

To help promote adoption, the IRS allows adopting parents to claim an adoption tax credit, deducting qualifying adoption expenses from their federal tax obligations. The maximum amount you can claim varies by year ($14,890 per child for tax year 2022, for example). Some employers provide adoption assistance. You can claim an exclusion for those funds.

When calculating your federal income tax obligations, the IRS won't count this as income. Taxpayers may claim qualified expenses even if the attempt was unsuccessful. Qualified adoption expenses include:

• Adoption fees
• Court costs and legal fees/attorney fees
• Home study fees
• Traveling expenses, including meals and lodging
• Other expenses related principally to the adoption

The adoption credit is nonrefundable and limited to your year's tax liability. You must have tax obligations equal to or higher than the credit's maximum to claim the total amount. The tax credit and exclusion are subject to income limitations. The limitations depend on your MAGI (modified adjusted gross income) for tax year 2022. You aren't eligible for the credit if you earned more than $263,410. You can claim part of the credit if your income is between $223,410 and $263,410.

Married Couples

Married couples may claim the tax credit when adopting a child together for private and public foster care adoptions. Or they can use the credit for international or domestic adoptions. But a married individual can't claim the adoption tax credit for expenses paid when adopting the other spouse's child. Expenses associated with second-parent or step-parent adoptions are not qualified adoption expenses for federal tax purposes. The IRS excludes second-parent and step-parent adoptions. The government wants to promote the legal adoption of an eligible child in the foster care system.

Before 2013, married same-sex couples could claim this credit. For example, one spouse is the birth parent; the other adopts their partner's child. Married same-sex couples could claim the adoption tax credit when their straight counterparts couldn't. The Defense of Marriage Act (DOMA) prevented the federal government from treating them as married. If one spouse wanted to adopt the child of their spouse, they could deduct the expenses associated with that adoption because the IRS refused to recognize same-sex couples as married.

The use of the adoption tax credit in this way ended when the Supreme Court struck down DOMA as unconstitutional in United States v. Windsor. Today, the IRS treats married same-sex couples the same as opposite-sex couples.

Married couples (gay or straight) may still deduct expenses related to adopting a new child that was not already the legal child of either spouse.

Unmarried Couples

The adoption tax credit works differently for unmarried couples. When one partner adopts the other's child, they can claim the adoption tax credit. Qualified adoption expenses include expenses incurred when a registered domestic partner or individual adopts their partner's child through a second-parent adoption.

If one partner has a child, the couple may consider completing a second-parent adoption before marriage. Then they can take advantage of the adoption tax credit.

The adoption tax credit is nonrefundable. So, whichever partner has the highest tax liability should pay for the adoption expenses. Then you can get the highest deduction available.

Adopted Child With Special Needs

Adoptive families who adopt foster care children who receive adoption assistance get credit for a special needs adoption. This is true even if the child is not disabled. If a child is disabled but does not receive assistance, the government does not consider it a special needs adoption.

Get Legal Help With Same-Sex Adoption and Tax Credits

The same-sex adoption tax credit no longer works as it used to, but substantial tax law issues remain when a couple seeks to adopt. If you have questions about adoption laws and navigating the same-sex adoption process or tax incentives for adopting, consider getting legal help. Contact a qualified adoption attorney near you.