MISSOURI STATE TAX CREDITS:  

 Click here to read the changes in the Missouri State Tax Credit.

FEDERAL TAX CREDIT

Small Business Job Protection Act of 1996 (SBJPA) Public Law 104-188. Enacted on August 20, 1996 allows adoptive families to take a tax credit of up to $5000 for qualify expenses paid to adopt eligible children. The law cam into effect in 1997 and expires December 31, 2002, but the law permanently establishes a $6,000 tax credit for the adoption of a U.S. child with special needs.

Qualifying expenses are reasonable unnecessary adoption fees, courthouse, attorney fees, traveling expenses meals and other expenses directly related to and whose principal purposes for the legal adoption of the child.

The income limit on the adoption credit is based on the modified adjusted gross income. If the adoptive families adjusted gross income is more than $150,000.00  per year to credit or exclusion will begin to phase out. At once the modified adjusted gross income reaches $190,000.00  or more to credit or exclusion will be eliminated.

The federal government defines an eligible child as a person being under 18 years all or younger, or physically or mentally incapable of caring for himself or herself. An eligible child is a child was special needs if year she is assistant arose in the United States and the state determines that the child cannot or should not be returned to his or her parents home and probably will not be adoptive less adoption assistance is provided to the adoptive parents. A foreign child cannot be treated as a child was special needs.

The adoption tax credit is $10,000.00 per adopted child. This means that a family adopting to children can receive tax credits totaling $20,000 upon completion of the adoption. There are numerous cases where there’s a failed adoption. This occurs in both foreign and domestic adoptions. For example, if $3000 is spent pursuing adoption of a child and that adoption is unsuccessful for any reason, and the family spends $4000 for the completion of the adoption of the second eligible child, the family is only entitled to the tax credit of $5000. In other words, all moneys in this situation will be treated as expenses paid in one adoption effort.

If an employer has a qualified adoption assistance program, than those amounts up to $5000 ($6000 for special needs children) paid by the employer to the employee will not be included in the employee’s gross income. This is not a credit. This is a payment by an employer to an employee that is a tax deduction for the employer and nontaxable to the employee.

INTERNAL REVENUE SERVICE LETTER RULING

Families who receive an IR-4 Visa after the child has been adopted abroad can not take the tax credit until there child has been readopted or the adoption has been recognized in the adoptive family's home state.  Click here for a copy of the ruling. 

 CLICK HERE TO READ IRS PUBLICATION 968

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