If you adopt a child in 2023, you may qualify for a tax credit for related expenses. If your employer helped pay for the costs of an adoption, you may be able to exclude that income from tax. In 2023, the maximum adoption tax credit and exclusion on a combined basis is $15,950 per child.
An eligible child is one who is under age 18. However, this age limit does not apply to adoptees who are physically or mentally unable to care for themselves.
Adoption expenses must be directly related to the child’s adoption and be reasonable and necessary. Types of qualifying expenses include adoption fees, court costs, attorney fees, and travel.
Qualified adoption expenses reimbursed by your employer through a written qualified adoption assistance program are excluded from tax, but they reduce the amount of qualified adoption expenses available for the credit. A special rule applies if you adopt an eligible U.S. child with special needs and the adoption is final: You may be able to take the full tax credit even if you didn’t pay any qualified adoption expenses.
Both domestic and foreign adoptions qualify for the credit, which may reduce your tax liability to zero. However, the credit is nonrefundable. So if the credit is more than your tax, you can’t get any additional amount as a refund.
Taxpayers should note that the credit and exclusion are subject to income limitations. The limits may reduce or eliminate your tax benefit. Don’t hesitate to call if you have any questions or want additional information about the adoption credit and exclusion.