Resources to Help Defray Adoption Costs

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Federal Tax Credit

At the Website, of the Internal Revenue Service, you will find information about tax rules and changes to those rules. You can link to this site for information about the IRS Adoption Taxpayer Identification Number, and for Publication 968, on the Adoption Tax Credit and Tax Exclusion. (http://www.irs.ustreas.gov/)

The adoption tax credit is available in the tax year that the adoption is finalized. In tax year 2003, a family that adopts an eligible child and has a modified adjusted gross income of less that $152,390 (up from $150,000 in 2002) may claim an adoption tax credit of up to $10,160 (up from $10,000 in 2002), depending on their expenses. To claim the credit, the family must document that they have incurred certain qualified expenses that are not reimbursed from another source. A family that otherwise meets the criteria but earns between $152,390 and $192,389 will be eligible for credit in an adjusted amount based on their income.

Beginning in tax year 2003, the law alters the criteria for a family that adopts a child with special needs only. Such a family that earns less than $152,390 may automatically claim a credit of $10,160 regardless of their actual qualified expenses. Families who earn between $152,391 - $192,389 will receive an adjusted credit based on their income, regardless of their actual expenses. Such families must still document their actual expenses and the fact that the State has determined that the child is special needs.

Adoption Benefit Exclusion

The law extends the exclusion from income for employer-provided adoption assistance, so that a family is not liable for taxes on adoption benefits provided through work. The maximum exclusion is increased to $10,160 per eligible child, including special needs children. The amount of the exclusion will be adjusted for families with incomes between $152,391 and $192,389. Beginning in 2003, families who adopt children with special needs may qualify for the exclusion regardless of their actual adoption expenses.

(This should not be considered as official guidance on tax law. Adoptive families should contact the IRS or a tax advisor for information on the tax credit or exclusion).

State Tax Credits

Several states have enacted state tax credits for families adopting children from the public child welfare system in that state. Contact your State Adoption Specialist; contact information can be found in our National Adoption Directory online.

Adoption from the US Public Foster Care System

If you are interested in adopting a child who is currently waiting in foster care, often not only are fees kept to a bare minimum or even waived, but many of the children will be eligible for federally-funded or state-funded adoption subsidy payments which help you meet the child's ongoing needs. In addition, some children qualify for SSI (Social Security Insurance) payments or Medicaid coverage because of their medical conditions.

Adoption Subsidy

Children with special needs may qualify for an adoption subsidy which is paid to adoptive families to help them pay for their child's need for ongoing therapies or treatment. Adoption subsidy agreements must be negotiated with the placing agency before the child's adoption is finalized. For more information see our factsheet Subsidized Adoption or contact the North American Council for Adoptable Children at http://www.nacac.org/adoptionsubsidy.html

Non-Recurring Adoption Expense Reimbursement

After families have finalized the adoption of a child with special needs from the public child welfare system, they may be able to apply for reimbursement of expenses they paid related to the adoption, which may include home study fees, travel expenses to meet the child, attorney fees, etc. Each state sets a maximum cap which cannot exceed $2,000 per adoption.

Employer Benefits

Many employers provide a range of benefits for families who adopt (including paid or unpaid leave when a child arrives in the home, reimbursement of some portion of adoption expenses, assistance with adoption information and referral services, etc.). Corporate human resource departments will provide employees with information about benefits available, if any. See our factsheet on Adoption Benefits for more information.

Adoption Loans

The National Adoption Foundation has established a $9 million revolving loan bank to provide unsecured loans to adoptive families. Your payments and interest then help other adoptive parents. NAF also has a home equity loan program. Both loan programs are financed through MBNA. The foundation has a limited program to provide grants,usually in the $2,500 range, to assist families with adoption costs. You can call the foundation to request that an application packet be sent to you.

National Adoption Foundation
100 Mill Plain Road
Danbury, CT 06811
(203) 791-3811.

Banker Norman Hecht, who is also an adoptive parent, has written an article for Adoptive Families Magazine on working to meet adoption expenses. You can request a free reprint from Adoptive Families of America by calling their toll-free number at 800-372-3300. Adoptive Families of America has a web site at http://www.adoptivefam.org.

For More Information...

The National Endowment for Financial Education has prepared a 78 page booklet, "How to Make Adoption an Affordable Option," to instruct adoptive parents about the range of financial assistance options that may be available. The booklet is available at no cost through NAIC, or you may download the booklet at the NEFE Website at http://www.nefe.org/adoption/default.htm.
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