THE ADOPTION TAX CREDIT: PROBLEMATIC IMPLICATIONS FOR LOW-INCOME TAXPAYERS

Abstract

The federal adoption tax credit was extended and expanded by 2001 legislation. The credit can now be as much as $10,390 per adoption. This paper provides details for the qualifications and limitations on the expanded credit. It also revisits the implication of these limitations on low-income taxpayers. Examples are given which show that adoptive parents, especially low-income taxpayers, may lose some of the credit when the carryforward period expires or may require several years to take advantage of the credit. The difficulty in these situations may be compounded for foreign adoptions or adoptions of children with special needs. The difficulty of coordinating the credit with the tax exclusion for employer adoption assistance payments is also reviewed as it relates to low-income taxpayers. Potential considerations for future tax policy decisions are mentioned.