[tewalker98]

I may sound completly uneducated and completely dumb, but how does the tax credit work? I mean, dh & I have only had to pay taxes once. We always have more taken out on our w2's so we get a refund every year. If you don't have to pay, does this tax credit still get applied in some way?

Thank you for any help. We are in the early process. We are gearing up for the home study. (nerves nerves nerves!!)

I am looking for anyone who would be willing to chat with me along the way here. I am a ball of anxious nerves!!

[Sylvester]

We finalized in 2001, we are still able to roll over the tax credit. We got a whopping $259 this year. Agencies post how wonderful the credit is, we are a single income military family so our income is not very large, unless you have a large income or alot to right off you don't see alot of the money. I think you can roll it over for 5 years, but I may not be sure.

[wanttobeparents]

Look at your tax form from last year. You have an amount of taxes paid in (withheld from each paycheck) and an amount of taxes due. If you have paid more than the amount due, you get a refund.

The tax credit applies to the amount of taxes due, not your refund. If you owe $15,000 in taxes and have paid in $17,000, you would ordinarily get a $2000 refund. The tax credit applies directly to the amount of taxes owed. Instead of owing $15,000, you would owe $5,000. Since you have paid in $17,000, you would get a refund check for $12,000.

If the amount due is $7,000, and you had paid in $9,000, you would get a refund of $9,000 with $3,000 rolling over to be used in the next 5 years.

Clear as mud?

Peggy

[tewalker98]

I guess the tax credit won't effect us very much. We were trying to find a way to adopt an infant. We can just come up with a small fortune that fast. We have tried and tried to save, just it's never enough. So over the past fews months we have decided to adopt a waiting child. In our state we can adopt a child out of foster care for no fees. So that is the route that we are pursuing. We are trying to adopt a child to enrich our lives and enrich the childs life. What is sad is that I just read my post and I sound so wrapped up in money, and I am not like that. I just want to be a mommy and have that little hand wrapped around my finger. After 6 years of IF treatments, I hate the fact that this has all come down to money!

[DianeS]

Do you remember, as one of the last steps in doing your taxes, looking up your income on a chart in the tax book and using that line to figure out how much the government really says you owe in taxes?

That number in the tax book is called your TAX LIABILITY.
If you paid in more than that to the IRS via paycheck withholding through the year, you'll get back the difference whether you adopt or not - that's the refund you get every year. The IRS always keeps your tax libility amount. Very, very ,very few people get back everything that they paid in - the IRS almost always keeps at least some of it. The amount they keep - the amount the charts in the tax booklet say they're going to keep - is your tax liability.

(I'll use the full $10,000 adoption tax credit figure for the rest of this. Also, you've already figured out how much money the IRS would return to you because you overpaid, so I won't mention that amount of money again.)

If that tax liability number is $10,000 or more - you will receive credit for the full $10,000 adoption tax credit, and will either receive $10,000 back from the IRS (if you paid it via your paycheck) or get to subtract $10,000 from the check you would have had to send to the IRS (if you send a check on April 15).

If that tax liablity number is less than $10,000 - you will receive all of your tax money back from the IRS (if you already paid via paycheck withholding) or not have to send in a check to the IRS at all (if you normally send a check on April 15).

**And you'll have some of that adoption tax credit left to claim next year. (If your tax liability amount was $3,000 - you'd get all $3,000 back and have $7,000 left to claim next year.) You have a maximum of 5 years in which to use up all of that adoption tax credit. Most people will run out of credit before they run out of years. (In this example assuming your income stays the same and tax rates don't change... you'll get $3,000 back the first year, $3,000 back the second year, $3,000 back the third year, and $1,000 back the fourth year.)

If that tax liability number is terribly small - like $500 - you'll get all your tax money back from the IRS (if you already paid via paycheck withholding) or not have to send a check to the IRS (if you normally would pay with a check on April 15).

**And you'll have lots of that adoption tax credit left to claim next year. (Ex: Your tax liability amount is $500. Assuming income and tax rates don't change... You'd get all $500 back the first year, $500 back the second year, $500 back the third year, $500 back the fourth year, and $500 back the fifth year, and not get to use any more of the adoption tax credit.

If your tax liability number is $0, you don't benefit from the adoption tax credit at all.

You can grab last year's tax forms (that of course you Xeroxed and keep in the file cabinet, right?) and look at your tax liabilty line from last year to get a ballpark figure of how much advantage you'll be able to take of the adoption tax credit this year.


I hope that helps...

[melicious1971]

just to let you know you did not at all sound like you were all about money. it is very frustrating to work so hard to save and have it not be enough. there is a child waiting for you whether it be through foster care or adoption.
good luck to you

[Anigel]

So lets mix the math up a little bit. Say the first year you used 2,555.55. So the second year you would go back to that filing cabinet and dig out those old numbers. We would need to keep track of that number to show the roll over on the following years taxes, correct?

Ugh! I hate tax time. Luckily this year hubby did them this morning before I woke up!

Also since we're still at the "opening stages" I just got my packet from the state. In it was a print out from the IRS, apperently the credit has gone up to 10,160 now. Has anyone else heard about this?

[Xanny]

There's a catch to this whole tax thing that nobody has mentioned.

It is a REIMBURSEMENT for adoption expenses. If you don't pay $10,000 in adoption expenses, you can't take $10,000 in tax credit.

You can count just about every expense related to adopion--we're going to Pittsburgh soon to meet with the agency, and our whole trip (mileage, hotel, meals) will count. So do postage and photocopying and phone calls. But if you adopt through the state and all those costs add up to $2,598, then you can only take $2598 for the adoption tax credit.

And don't worry, tewalker, we all understand that nobody adopts to save money. It sucks that your choice comes down to that, but rest assured--if it's important, you will find a way. The good part about it coming down to money is that there are usually ways to work out money problems.

Good luck (you can do it!)
Xanny

[DianeS]

Xanny,

If the child you adopt is a *special needs* child in the custody of one of the USA's states, then you get the FULL tax credit regardless of your expenses.

If you adopt through the state, the state terms your child a "special needs" child, and you spent only $2,598 on expenses related to the adoption ... you still get the full $10,000 adoption tax credit.

This only applies to children in state custody in the USA who are labeled "special needs". It does not apply to special needs adoptions from other countries, special needs adoptions that are conducted privately, or non-special needs adoptions from anywhere (including the state).

[Figgy]

Does anyone know if you can take the tax credit while still waiting on a domestic adoption? We paid out >$10K in 2003 and would like to use the credit to pay for the rest upon placement (hopefully in 2004!).

[riley6]

This is from the IRS site:

http://www.irs.gov/publications/p968/ar01.html#d0e277

It tells you when you can take the credit.

[adoptedsiblings]

Hello everyone...just finished filing my taxes...here's the scoop.

the credit is 10,160 per child...you must provide proof of spending the 10,160 to get the credit unless you have a special needs child then you get the full amount regardless...

BEWARE if you are self-employed (like my husband) it DOES NOT decrease the amount of self employment tax you pay. I was very sorry to see that after adopting two special needs kids - a sibling group- that I still have to pay self-employment tax! THANKS UNCLE SAM! But like you ... I don't want to sound ungrateful for my children! They are so worth it!

Also if you have a lower income (like my husband and myself) you have a lower tax liability and thus the credit doesn't do you much good...but you are allowed to apply the unused portion of the credit to your future taxes over a 5 year period....so hang on to those tax forms!

Hope this helps!

April L.

[adoptincolorado]

It's a good sign to be a little nervous before your Home Study - shows that you really are engaged and care about the process as well as the end result. As for the Tax Credit. Our agency is a pay as you go and our accountant tells us that we'll need to wait until the adoption has been finalized and the full amount has been paid out before we can take the tax credit...that is our scenario. I understand though that there may be other scenarios...they just didn't apply to us.

[JadedSaint]

I usually post on some of the other boards, but started to lurk here as well! My head is spinning with all this info. BUT....THANK YOU for educating and enlightening me on the tax credit info. We are seeking adoption of a "special needs" child through the state. We're still in the beginning process, but learning as much as we can. We have this genius nerd of an accountant who took the time to explain the adoption tax credit to us. But reading it in writing, from those who have experienced the credit makes more sense to me!