As you probably already know if you’re in the position to seek the adoption credit, this credit has undergone some changes for the 2012 filing season.
In the past, for tax years 2010 and 2011, the adoption credit was a refundable credit – meaning that you could receive the entire credit regardless of the amount of tax you have to pay. For example, if you had $10,000 of adoption credit and your tax return otherwise indicates that your tax is $6,000, you were able to claim the entire credit and $4,000 would be refunded to you. This was in addition to any overpayment you may have made on your withholding.
However, for 2012 (and beyond, unless the rules change again) the adoption credit is back to being non-refundable. Now, in the situation described above, the maximum amount of credit that you could claim is equal to your tax, or $6,000.
The limit for adoption expenses for 2012 is $12,650 per child. A portion of these expenses could have been incurred in a prior year, and the credit claimed for that tax year. The total of all credits for the adoption of that child (including prior years’ credit) cannot exceed $12,650 if the adoption was finalized in 2012. Any excess credit cannot be carried over to future years.
There is also an income limit for the credit: if your Modified Adjusted Gross Income is less than $189,710 for 2012, the credit is not limited. If your income is above that level but less than $229,710, the maximum credit is reduced pro rata from $12,650. Above a MAGI of $229,710, the credit is eliminated.
It’s important to note that there is also an income exclusion limit for employer-provided adoption benefits – which is also equal to $12,650 per child for 2012. This exclusion has the same MAGI limits as the credit. Credit and exclusion can be taken for the same adoption, but not for the same expenses.
For example, if you had a adoption expenses of $18,000 for tax year 2012 and your employer provided you with adoption assistance of $10,000 for the year, you would only be able to take the credit for $8,000 (the remaining expenses).
Lastly, the adoption credit is claimed on Form 8839, Qualified Adoption Expenses. When using this form to claim adoption credit, you are not allowed to efile your return, it must be printed and filed by mail. However, you do not have to send along the supporting documents and adoption decree (as you did in 2010 and 2011), since the credit is no longer refundable.