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Originally Posted By chieffan9

baby2,
You do not get a check. Instead, your tax bill this year will be reduced by $10,000, or whatever your federal tax bill is, whichever one is less. An easy example is this: Whenever you file your taxes next year (in 2003) for this year's income (2002), let's say after all is said and done that your tax bill (or the amount that you should have paid for the year in income taxes to the federal government) is $5,000. This is after you have taken all of your other deductions, credits, etc. Let's say that your employer took a grand total of $6,000 out of your check during the year, so you are now owed $1,000 by the government. With the tax credit, the government will now also owe you the $5,000 that you would normally pay them. So,...instead of getting a refund of $1,000, you will now get a refund of $6,000. And, because you did not use the entire $10,000 credit (you only used $5,000), you would do the same thing the next year. You can take up to five years to use the credit, if your tax bill is less than $10,000 each year.

It's great that the government pays for $10,000 of your adoption expenses, but the problem is you don't get this money from them until you get your tax refund the following year, long after you've already paid for those $10,000 worth of expenses. If you truly don't understand my explanation, I would contact an accountant. Most CPA's won't touch adoption, but I'm sure if you ask around enough you'll find one that will know what's going on.

There are also other ways to get at that money sooner. For instance, you can reduce your federal tax withholdings to zero. This means that your employer will not withold any federal taxes throughout the year. Knowing that your tax bill should be under $10,000, and knowing that you will get an adoption credit of the full amount of your tax bill, you obviously can determine that you will not owe any taxes for the year. This means that since your employer is not witholding any money for federal taxes from your check, your paychecks will be bigger each time than they normally would be. In effect, what you've done is gotten your tax credit in installments throughout the year. This is great if you'll set aside this money to pay for your expenses, but many people don't have the willpower to do this. They also might get used to having a larger paycheck than they normally would, and will get a big shock when they have to go back to having their employer withold that money from the paychecks in a year or two.

I believe that there are also ways to sell or "assign" your credits. I know that that's allowable with the State of Missouri's tax credit, but I'm not sure about the Fed's credit.

Hope I've helped!