Download Adoption Tax Credit 2021 Calculator in Excel, OpenOffice Calc, and Google Sheet to easily calculate the eligible adoption tax credit.
This template allows you to sum up all the expenses you have made during the year of finalization of adoption and calculate the claimable credit amount for 2021.
Additionally, this article consists of complete information for Adoption Tax Credit 2021. It includes eligibility criteria, credit amount, income/dollar limitations, MAGI phaseout limit, eligible expenses, and time rules.
What is Adoption Tax Credit?
As per the IRS,
The IRS provides a tax credit for qualified adoption expenditures paid to adopt an eligible child, as well as an income exclusion for employer-provided adoption assistance. The credit is nonrefundable, which means it is only good for the amount of tax you owe for the year. Any credit that exceeds your tax due, on the other hand, can be carried forward for up to five years.
A taxpayer can only claim eligible costs that have been approved by the IRS. Adopting an is a difficult task. It is frequently a tough and costly procedure. This credit is a blessing for parents who want to adopt a kid. It contributes to lowering the financial burden of adopting a kid.
Types of Adoption
There are 2 types of adoptions: Domestic and Foreign. Let us understand each in detail.
Domestic adoption refers to the adoption of an eligible child who is a citizen or resident of the United States or one of its territories before the adoption process begins.
Foreign adoption is the adoption of an eligible child who is not yet a citizen or resident of the United States or its territories at the time the adoption process begins.
Qualified Adoption Expenses
As per section 23(d)(1) of the IRS Code, qualified adoption expenses for the tax credit and the exclusion from income, are as follows:
- Reasonable and necessary adoption fees,
- Court costs and attorney fees,
- Traveling expenses (including amounts spent for meals and lodging while away from home), and
- Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.
Even if an expenditure is paid before an eligible kid has been discovered, it may be a qualifying adoption expense.
For example, if prospective adoptive parents pay for a home study at the start of an adoption process can deduct the expenses as qualifying adoption expenses.
Moreover, qualified adoption costs can also include expenses paid by a registered domestic partner who resides in a state that permits a same-sex parent or co-parent to adopt his or her spouse’s kid as long as the costs qualify for the credit.
For Adoption Tax Credit, Child eligibility is that he/she should be below 18 years. But there are two types of child categories: Normal Child and Child with special needs.
A normal child must be under the age of 18 or is physically or mentally incapable of self-care. The child can be either a U.S. citizen or resident (including U.S. territories) or a non-US citizen when the adoption process starts.
Child With Special Needs
The child with special needs can be a U.S. citizen or resident or a non-US citizen when the adoption process starts.
Moreover, any child cannot be deemed as a special child. Only kids that the state deems cannot or should not be returned to their parent’s homes.
Furthermore, a child for whom the state has determined that he or she is unlikely to be adoptable without the aid of the adopting parent.
For the Adopter Couple, the Filing Status in current and previous Federal Tax Return should be Married Filing Jointly.
Moreover, if the couple has filed a tax return with filing status Married Filing Separately they need to file an amended return for the previous year with filing status Married filing jointly.
Furthermore, there is an exception for couples filing a return separately. They can claim only if all the following conditions apply:
- Statements (2) and (3) under Who Can Take the Adoption Credit or Exclude Employer-Provided Adoption Benefits are true.
- You lived apart from your spouse during the last 6 months of the adoption year.
- The eligible child lived in your home for more than half of the adoption year.
- You provided for over half the cost of keeping up your home.
A couple pays adoption expenses of $3,000 in 2018, $5,000 in 2019, and $6,000 in 2020. If the domestic adoption becomes final in 2020.
As the couple might have already filed a tax return for 2018 and 2019 with filing status as Married Filing Separately. As per the law, in 2020 they need to file the Federal Income Tax Return with status married filing jointly.
They will be eligible to claim only $11,000. Adoption expenses $5,000 of 2019 and $6,000 of 2020. Hence, as they previously filed separately in 2019, the $3,000 amount paid in 2018 is not claimable.
Adoption Tax Credit 2021
The Adoption Tax Credit for the year 2021 is $14,440.
For a normal qualifying child, you can claim up to $ 14,440 in actually spent qualified costs. You can claim these costs in the year after the expense year, and the MAGI limit applies. For instance, funds spent in 2020 can be claimed in 2021.
Adopting a qualifying special needs child, the couple can claim the maximum credit of $14,440 in the year of completion even if the actual expenses are less. In simple terms, you can claim the full amount of $14,440 even if the expenses made are less.
MAGI Phaseout Limits
The credit and exclusion are both subject to income and dollar limitations. The adoption credit or exclusion income limit depends on your modified adjusted gross income (MAGI). The MAGI phaseout begins at $216,660 and ends at $256,660 for the tax year 2021.
Thus, if your MAGI amount for 2021 is less than $216,660, you can avail of full credit. Moreover, there will be no effect on your exclusion of employer-reimbursed adoption amount from your taxable income. However, if your MAGI amount for 2021 is $256,660 or more, your credit or exclusion will be zero.
The amount of qualifying adoption expenditures paid and claimed in prior years for the same adoption efforts can be deducted from the dollar limit for that year. For 2021, it is $14,440.
Timing Rules for Adoption Tax Credit
The tax year for which you can claim the credit depends on the following:
- When the expenses are paid;
- Whether it’s a domestic adoption or a foreign adoption; and
- When, if ever, the adoption was finalized.
Generally, the credit is allowable whether the adoption is domestic or foreign. However, the timing rules for claiming the credit for qualified adoption expenses differ, depending on the type of adoption.
Qualified adoption costs paid before the year of finalization of the adoption can be deducted in the tax year following the year of payment, even if the adoption never finalizes or an eligible child is not identified.
On the contrary, qualified adoption expenditures paid before and throughout the year are deductible only in the year in which the adoption is finalized.
In short, qualified adoption expenses allowable in the current year may include expenses paid in a former year or years.
Download Adoption Tax Credit 2021 Calculator (Excel, OpenOffice Calc & Google Sheet)
We have created a simple and easy-to-use Adoption Tax Credit 2021 Calculator with predefined formulas and functions. Just insert the applicable amounts and it will calculate the claimable credit for the year 2021.
Download by clicking below on the desired format:
Additionally, you can also download Federal Income Tax templates like Adjusted Gross Income Calculator 2021, Itemized Deduction Calculator 2021, Recovery Rebate Credit Calculator, Employee Retention Credit Calculator 2021, Paycheck Calculator, and IRS Compliant Mileage Log Template.
Furthermore, feel free to contact us for the customization of this template as per your requirement. We also design new templates based on your needs. You can hire us for our services on Fiverr or directly contact us at firstname.lastname@example.org.
How To Use Adoption Tax Credit Calculator?
We have designed the Adoption Tax Credit 2021 Calculator for 4 different types of adoptions:
- Domestic Adoption of Normal Child.
- Domestic Adoption of Child with special needs.
- Foreign Adoption of Normal Child.
- Foreign Adoption of Child with special needs.
This template consists of 3 sections: Eligibility Section, Adoption Expenses Calculations, and Adoption Tax Credit Calculations.
Let us understand each section in detail.
Eligibility Section consists of the following:
Modified Adjusted Gross Income(MAGI) 2021
MAGI Phaseout Start
MAGI Phaseout End
Insert the Modified Adjusted Gross Income(MAGI) for the year 2021. If you don’t have the MAGI figures, you can use our MAGI Calculator 2021 to calculate your Modified Adjusted Gross Income.
In case your MAGI is below or between the limits then the template displays “Yes” otherwise “No”. If it is “Yes” then you can proceed to further calculations. But if it is “No” then you are not eligible for the Adoption Tax Credit.
Adoption Expense Calculations
Based on the rules above for Eligible Expenses, the Adoption Expenses Calculation Section consists of the following heads for all four types of adoption. Insert data in the one whichever applies to you.
Year in Which Adoption Was Finalized
Adoption Tax Credit 2021
Child’s Age In the Year Adoption is Finalized
Adoption Expenses Paid To Adoption Agency, Individual Adoption, Birth Mother Expenses
Traveling Expenses For Adoption Purpose (meals, lodging, and other expenses while away from home)
Advertising and Networking Expenses For Adoption
Total Adoption Expenses
Insert the applicable expenses and the template displays the total adoption expenses. Check out the qualifying adoption expenses section given above.
Adoption Tax Credit Calculator
This section consists of the following heads:
Total Adoption Expenses
Eligible Adoption Expenses
Adoption Expenses Claimed In Previous Tax Returns
Claimable Adoption Tax Credit 2021
Deduct Adoption Expenses Reimbursed by Employer from your income
Based on the rules you can claim up to $14,440 for a domestic normal child. For Special needs children, you can claim the full amount even if the actual expenses are less.
The template consists of predefined formulas that automatically fetches the eligible Adoption expenses. Moreover, if you have received any adoption tax credit in previous years you need to insert the amount. The final claimable amount will be the difference between the eligible amount and previously received credit.
In case, you have received reimbursement for Adoption Expenses from your employer, insert it here and you can decrease your taxable income by that amount.
Frequently Asked Question
How to claim adoption expenses?
You can claim adoption expenses by filing Form 8839. See the image below:
Click on the link below to download the form to claim adoption expenses:
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Disclaimer: This article is for information and educational purpose. Information provided here shall not be treated as tax advice. Kindly consult a tax expert before filing your tax return.