Today, the President will sign H.R. 8, “American Tax Payer Relief Act of 2012”, which will make the Adoption Tax Credit, first enacted as part of the “Bush Tax Cuts”, permanent. In 2013, families earning less than $194,580 can claim a tax credit of up to $12,970. Some portion of the credit is available for families earning up to $234,580. Those dollar amounts are adjusted annually based upon inflation.
The Adoption Tax Credit is NOT refundable. In other words to receive the credit, you must have paid Federal Income Taxes in an amount equal to, or greater, than the amount of credit being claimed, but a family can carry forward to the next year any unused credit. Here are some examples to help understand how the credit works: (1) If the family pays $2000 of Federal Income Tax and would receive a $2000 tax refund without regard to the Adoption Tax Credit, the family would not be eligible for any of the Adoption Tax Credit that year. (2) If the family pays $6000 of Federal Income taxes for the year and would normally receive a $1000 tax refund without regard to an adoption, the Adoption Tax Credit for that year would be $5000. In both of those cases, the families would be entitled to claim the Adoption Tax Credit the following year if they paid enough in federal income taxes to support the Adoption Tax Credit. In the first example the family would be entitled to an amount up to the full credit. The second family would be entitled to an amount up to the full credit, less the $5000 they received in the first year.
This information should not be construed as constituting tax advice. Persons interested in claiming the credit should consult a tax professional to be sure that they qualify.