Parental Tax Questions: Claiming Adoption Expenses, the Child Tax Credit and More
Being a parent or having dependents can make filing taxes a little more complicated, but it also provides some deductions and benefits that are worth exploring.
If you recently adopted your child, there are even more tax issues to consider when filing. Here are a few questions that we deal with on a regular basis.
Can I Claim Adoption Expenses?
The IRS allows the adoptive parents to claim an Adoption Tax Credit, or ATC, which includes qualified costs of adoption such as adoption fees, court costs & attorney fees, travel expenses including meals and lodging, and other expenses related to adoption. The maximum amount of claimable expense varies year to year and, if an employer provides adoption assistance benefits, an exclusion for those funds can be claimed. That just means that the adoption expenses reimbursed by the employer’s program won’t count as income when calculating federal tax obligations.
The ATC is nonrefundable, meaning it is limited to your tax liability for the year. To claim the full amount, you must have tax obligations equal to or higher than the credit's maximum. Any credit in excess of a person’s tax liability may be carried over for up to 5 years. The max amount of credit available in 2019, for example, was $14,080 per child. However, income effects the amount of credit parents can claim.
How do I know if I’m eligible for the ATC?
To be eligible for the ATC credit, parents must:
Have adopted a child other than a stepchild. A child must be either under 18 or be physically or mentally unable to take care of him or herself.
Be within the income limits. Income affects how much of the credit parents can claim. In 2019, families with a modified adjusted gross income below $211,160 can claim full credit. Those with incomes from $211,160 to $251,160 can claim partial credit, and those with incomes above $251,160 cannot claim the credit.
What About Other Tax Credits for Parents?
There are significant tax credits for parents who have qualifying children. These credits may include the Child Tax Credit, the Child and Dependent Care Tax Credit, the Earned Income Tax Credit and Education Tax Credits
In order to claim a child as a qualified dependent, the “qualifying child” must be the taxpayer’s biological or adoptive child, stepchild, foster child, minor sibling or stepsibling, or a descendent of any of these, such as a grandchild.
How do same-sex parents claim their dependents?
Like heterosexual married parents, same-sex parents who have legal ties to their children can claim their children as dependents using the “qualifying child” category, but if there is no legal parent-child relationship, they are excluded from claiming these credits and exemptions designed to help defray the cost of raising children. Same sex couples who are married and filing jointly will claim all of their eligible dependents together on the same return.
Which parent can claim their child as a dependent?
If a same-sex couple has a qualifying child and they are filing separately (as in the case of domestic partnerships), one of the parents – but not both – may claim the child as a dependent. If both parents claim the dependency deduction for the child, the parents with whom the child resides for the longer period of time during the tax year is entitled to claim the dependency deduction. Should the child reside with each parent for the same amount of time during the tax year, the parent with the highest adjusted gross income can claim the deduction. This is the same for heterosexual parents who are divorced or separated.
If you have any other questions about how to claim dependents on your tax return this year, please do not hesitate to reach out – I’m happy to help!