Adoption Expenses - Taxes on Assistance

Adoption assistance is exempt from taxation. Like child support that a custodial parent receives from a divorced spouse, adoption assistance is not considered as income. However, the level or amount of assistance may affect whether the child can be claimed as a dependent and be listed as an exemption on your income taxes. (Refer to the previous section titled "Dependency Exemption.")

Up to $5,000 in employer-provided adoption benefits (up to $6,000 for special needs adoptions) per child may be excluded from your income. You may claim both a tax credit and an exclusion in connection with the adoption of an eligible child, but may not claim the same expenses twice. As with the tax credit, tax-free adoption benefits are gradually phased out once family income rises above $75,000.