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Originally Posted By Sharon

For all international adoptions and for domestic non-special needs adoptions, the actual amount of the credit depends on the amount of your "qualifying adoption expenses." If they are equal to or greater than $10,000, you get the full credit. If they are less than $10,000, you get an amount of credit equal to the amount of qualifying adoption expenses.

In an earlier version of the bill, which did not pass, domestic special needs adoptions were subject to the same rule. However, many in Congress objected, because it did not give enough incentives to people adopting the hardest to place American children. So the final version of the bill gave a flat $10,000 credit to people adopting domestic special needs kids.

Do remember, however, that this is a CREDIT, not a cash gift. In other words, it reduces the amount of your total tax liability. By total tax liability, I mean the full amount you owe, whether it was already deducted from your paycheck or whether you pay it on April 15. If your total tax liability is less than $10,000 in the year you file for the credit, you can carry over any remaining credit to subsequent years.

Here is an example:

You finalize an adoption of a domestic special needs child in 2003 (when the special needs provision first takes effect).

Your total tax liability that year is $5,000. Your employer had already deducted $3,000 from your paycheck to cover those taxes, and you would normally have paid the remaining $2,000 when you filed your 1040 for 2003.

You will use $5,000 of the adoption tax credit to wipe out your total tax liability that year. That means, you overpaid tax by $3,000, when it was deducted from your paychecks. So you will get a $3,000 credit.

Then, in 2004, when your total tax liability is $6,000, the remaining $5,000 credit will reduce your liability to $1,000. If that has already been deducted from your paychecks, you won't owe anything when you file your taxes. If more than $1,000 was deducted from your paychecks, you will get the balance back as a refund.

To read the law in its entirety, follow these instructions:

1. Go to http://thomas.loc.gov.

2. Type in H.R. 1836, where it asks for bill number, and click on "search".

3. Click on the version of the bill marked "enrolled as agreed to or passed by both House and Senate." That is the one that was signed into law by the President.

4. When the text of the bill comes up, go to Section 202 and click on it.

5. The part about the credit being a flat $10,000 for domestic special needs adoptions is in the second section marked (a).

The IRS forms and instructions for 2002 and 2003 have not yet been published. However, you can get some information on how the adoption tax credit will work as follows:

1. Go to http://www.irs.gov.

2. Where it says "Search forms and publications for...", type in 968.

3. On the next screen, click on "Publication 968, Revised January 2002"

4. Most of the publication relates to the old tax credit. Look at that mainly to get the general idea of how a tax credit works.

5. On page four of the publication, however, there is a section that begins, "New Rules for 2002". Read them carefully.

If you are having difficulty reading either the law on Thomas or the tax publication from the IRS, it is probably because you do not have Adobe Acrobat Reader installed on your computer. You can get the Adobe Acrobat Reader downloaded at no charge by going to the Adobe website. It is definitely something that everyone should have, as you can't read most government documents on the Internet without it.

I hope this is helpful. If you continue to have questions, please ask.