The IRS has announced the Adoption Tax Credit for 2023. It will apply to any adoption finalizing (meaning when the Judgment of Adoption is entered) in calendar year 2023. The maximum credit is $15,950 per child. As in prior years, special needs (i.e. foster care) adoptions automatically get the full amount of the credit. Private adoptions may get the credit based on their qualifying expenses, up to a cap of $15,950. The federal credit begins phasing out for taxpayers reporting $239,230 and completely phases out at $279,230.
Don’t forget that Illinois residents now also have an adoption tax credit. It’s up to $5,000 (for married joint filers) per Illinois child one year of age or older at the time of adoption, or $2,000 per child . Just like the federal credit, special needs (foster care) adoptions automatically get the full amount of the credit. Illinois has a specific statute that sets out the credit.
The amount of the credit you do not use the first year you are eligible to claim this credit, for both state and federal tax credits, will carry forward – for up to five years. To claim the credit, file Form 8839 with your taxes.
As in prior years, the credit will not be able to reduce your tax liability below zero, as it is non-refundable. Put another way, you have to pay taxes in order to get them credited back. If you don’t pay taxes, or already get the full amount refunded to you, then the adoption tax credit won’t have anything to apply to.
The tax credit is not available for: adopting your spouse’s child, surrogate expenses, expenses reimbursed by employer programs for adoption It has been reported that half of US companies today offer adoption benefits.