Federal Adoption Tax Credit for 2016

WHAT IS THE ADOPTION TAX CREDIT?

Introduced in 1997, the adoption tax credit’s purpose is to make adoption more affordable. As part of the American Taxpayer Relief Act of 2012, the adoption tax credit became a permanent law.

The adoption tax credit is available to those who adopt privately, both domestic and international, as well as through an agency, or through foster care. The credit is not available for step-parent adoptions.  

Remember, a tax credit is different than a tax deduction—it’s better! A credit is an amount that is subtracted from your tax liability. The adoption tax credit is also NOT A REFUND. The credit is applied against what you owe in taxes to the federal government.

HOW MUCH IS THE ADOPTION TAX CREDIT?

For the year 2016, the maximum allowed for adoption tax credit is $13,460 per child. The credit phases out for families with higher levels of income. Under the 2016 adoption tax credit formula, adopting parents who earn no more than $201,920.00 are entitled to take the full credit. For adopting parents who earn between $201,920.00 and $241,920 in income, there is a reduced tax credit, and no tax credit is available for those earning more than $241,920.

WHICH ADOPTION EXPENSES CAN BE CLAIMED?

The adoption credit is offered for “qualified adoption expenses.” Qualified adoption expenses include:

• reasonable and necessary adoption fees;
• court costs and attorney’s fees;
• adoption travel costs (including meals and lodging); and
• other expenses that are directly related to adoption.

Remember, it is important to keep all invoices and receipts for fees and costs as well as court documents and agency agreements related to your adoption. There is no requirement to attach the adoption expense documentation with your tax return. You must, however, keep the documentation as part of your own records as you may be audited by the IRS for authenticity.

Some employers offer an adoption assistance program for adoptive parents. If the adopted child does not have special needs, those expenses paid for by the employer would not be qualified adoption expenses for purposes of the adoption tax credit. 

WHAT IF I ADOPT A CHILD WHO HAS SPECIAL NEEDS?

For parents who adopt children with special needs, the full credit of $13,460 may be allowed for the adoption even if you do not have any qualified expenses at all or if you have benefited from your employer’s adoption assistance program.

For purposes of the adoption tax credit, a child has special needs if:

  • the child is a citizen or resident of the United States when the adoption effort began;
  • a state determines that the child cannot or should not be returned to his or her parents’ home; and
  • the state determines that the child probably will not be adoptable without assistance provided to the adoptive family.

In other words, for adoption tax credit purposes, “special needs adoptions” are generally children in foster care and are not necessarily children who have disabilities.

WHEN CAN I CLAIM THE CREDIT?

The tax year you claim the credit depends on when the expenses were paid, whether the adoption is domestic or international, and when the adoption is finalized.

In a domestic adoption, qualified adoption expenses paid before the year the adoption becomes final are allowable as credit for the tax year following the year of payment regardless of whether the adoption is finalized. In an international adoption, qualified adoption expenses paid before and during the year are allowable as a credit for the year the adoption becomes final. Once an adoption is finalized, qualified adoption expenses paid during or after the year of the finalization are allowable as a credit for the year of the payment, regardless of whether the adoption is domestic or international.

It is also very important to note that any credit in excess of your tax liability may be carried forward for up to five years.

HOW DO I CLAIM THE ADOPTION TAX CREDIT?

To claim the credit or exclusion, complete Form 8839, Qualified Adoption Expenses, and attach the form to your Form 1040, U.S. Individual Income Tax Return.

HOW DOES THE ADOPTION TAX CREDIT WORK?

For example, a family does their 2016 federal taxes and finds they owe $5,000 in taxes and is eligible for the full tax credit of $13,460. Therefore, they may apply the credit against their tax liability and pay zero in federal taxes for the year. In addition, they may carry over $8,460 to apply against their tax liability for the next five years.  

FOR MORE INFORMATION ON THE ADOPTION TAX CREDIT VISIT: https://www.irs.gov/taxtopics/tc607.html

*Please note: We are not financial advisors or tax preparers. This advice should be considered general guidance only and not professional advice or as a substitute for IRS instructions. Be sure to check with the appropriate tax advisor, or other professional for your specific situation.

*Please also note: This information is relevant to families considering the adoption tax credit for the 2016 tax year. Rules and eligibility have changed over the years and are not documented in this article. 

International Adoption and U.S. Citizenship

International adoption, while exciting and remarkable, can bring confusion and uncertainty when it comes to immigration status. It is very important to ensure that your internationally adopted child becomes a U.S. citizen. If adoptive parents postpone obtaining their adopted child’s citizenship, he or she may later have difficulty obtaining driver’s licenses, passports, scholarships, working legally, voting, and enjoying basic citizenry rights and privileges. Worse, adopted children without U.S. citizenship may grow up to be subject to deportation. Safeguarding your child’s future is an imperative.

U.S. CITIZENSHIP - ACQUIRED AUTOMATICALLY

Under the Child Citizenship Act of 2000, some, but not all, children adopted abroad automatically acquire U.S. citizenship. If your adopted child entered the United States on an IH-3 or IR-3 visa, U.S. citizenship is automatically acquired if:

  • at least one of the child’s parents is a U.S. citizen;
  • the adopted child entered the United States prior to his or her 18th birthday;
  • the child lives in the legal and physical custody of the U.S. citizen parent;
  • the child entered the United States as an immigrant for lawful permanent residence, and
  • the adoption is final.

For those IH-3 and IR-3 cases, a Certificate of Citizenship should be received within 45 days of admission without additional forms or fees.

In New York, those children who enter the Unites States on an IH-3 or IR-3 visa can file a Petition for Registration of Foreign Adoption Order in either Family Court or Surrogate’s Court. This allows adoptive parents to get a New York court order that recognizes the foreign adoption and gives parents the ability to obtain a New York birth certificate from the Department of Health. It is also an opportunity to legally change your child’s name and have it registered on his new birth certificate.

If you would like to obtain a New York court order or New York birth certificate for your internationally adopted child, contact your adoption attorney for more information on how to file a Petition for Registration of Foreign Adoption Order.

U.S. CITIZENSHIP - NOT ACQUIRED AUTOMATICALLY

If your adopted child entered the United States with an IH-4 or IR-4 visa, U.S. citizenship is not automatic. Instead, your adopted child automatically receives a permanent resident card (green card).  If your adopted child is a permanent resident (green card holder), you should contact your adoption attorney and begin the process of re-adoption in the Family or Surrogate’s Court. It is very important that your adopted child’s re-adoption is final as soon as possible and, in no uncertain terms, before his or her 18th birthday.  

Your adopted child automatically acquires U.S. citizenship on the date of his or her re-adoption in the United States (if the adoption occurs before the child’s 18th birthday). Once the re-adoption is final, you can file the Form N-600 with the necessary supporting documents and the fee of $1,170 by check or money order made payable to U.S. Department of Homeland Security, and if approved, your adopted child will be issued a Certificate of Citizenship.  

For more information on U.S. Citizenship for an internationally adopted child go to:
https://www.uscis.gov/adoption/bringing-your-internationally-adopted-child-united-states/us-citizenship-adopted-child

*Please note: The above information is not a comprehensive summary of the laws governing adoption or immigration as they relate to international adoption and citizenship. Please contact your adoption attorney or immigration attorney for more information.

How to Speak Wisely and Compassionately to Foster and Adoptive Families

Dr. John DeGarmo is a leading expert in the parenting and foster care field. He has authored several books and frequently writes for the Huffington Post. His article, 7 Things You Should Never Say To A Foster Parent, caught my eye and lodged in my heart. Dr. DeGarmo, a foster parent to more than 50 children, over the past fourteen years, captures the beauty of opening one’s home and heart to a child in need of love and security with his empathic words. There are far too many children, hurting, suffering and in need in our country. Consider fostering and fostering to adopt and become “rich with love, laughter, and the opportunity to watch children heal and find hope”. You can find Dr. DeGarmo at The Foster Care Institute. Call Leslie and me to talk about foster adoption and whether it could work for you.

Tips for Creating An Adoption Profile Book

Your profile book, whether digital or bound, is often the first impression you make upon potential birth parents. Your pictures and captions can tell your story better than 1000 words.  Below is a list of ten suggestions to help you tell your story and make a beautiful, attention grabbing profile book.  

1.  Start by compiling lots of fabulous, smiling pictures!  Pictures should show you with your loved ones, friends, pets, on vacation, enjoying your hobbies or sports and celebrating holidays.  Crop your photos so we can see the faces of the people in the picture.  Use clear, in focus pictures and lots of them!

2.  The next step is to introduce yourself.  Your first page is a picture of you, whether you are single, a couple, or perhaps you have children already at home, it is your nucleus family.   Also on your first page is a short, gentle hello inviting the birth parent(s) to learn about you by looking through your book and briefly describing your dream of building your family.  

3.  DO NOT go down the path of telling the birth parent(s) you understand what she is going through or how difficult you understand her decision to be.  You do not understand what she is going through.  It is nice to wish her good health, peace and serenity.  It is ok to thank her for taking time to read your book. 

4.  The next two pages are dedicated to each of you.  It is particularly nice when one spouse writes about the other, describing his/her partner’s best qualities and what he/she loves about the other.  Dedicate one page of pictures and text to each of you.

5.  If you have a child, dedicate a separate page describing him/her.

6.  Fill out your book with pictures showing your extended family, hobbies, travel and sports adventures, holiday traditions, wedding pictures, and outings with friends.  It is ok to have a short narrative explaining some pages, but equally fine to use captions under pictures to make your pages more attractive and less wordy.  Captions should be catchy!  Why say, “We like to cook” when you can say “Sunday morning buttermilk pancakes bursting with blueberries, fresh maple syrup and bacon!”

7.  It is always nice to include pictures of your home and neighborhood.  You might highlight pictures of your Christmas tree, a beautifully set dining room table, or cuddling in your favorite den chair with the dog/cat!  If you have a lovely garden, backyard or live near a park or beach, by all means show it off!  You have to be in the picture though – the picture should be you hanging the Christmas decorations or building a sand castle, standing over your bike in the neighborhood.

8.  The first pages of your book/website should be an introduction to you alone.  Save your friends and family story for the middle pages.  It is great to share a couple pictures of you with friends and extended family, especially nieces and nephews.  Make sure you are in the pictures as often as possible and that everyone is smiling!

9.  One of the more creative pages adoptive parents may want to add is a “Favorites” page.  Create a chart of categories where you each list a few of your favorites such as: food, vacation place, sport, song, movie (books are not as universally known as movies), maybe even something silly like favorite superhero!  Do this near the end, as it is a light and fun way to finish up your book.

10.  The last page should be a nice sized photo of you with contact information such as a toll free 800 number or specifically designated email.  It is best to consult with your attorney or agency concerning what contact information you list, but you will need a way for the birth parent(s) to find you.  Always say thank you for reading your book!

Financial Planning for New Families

Those first few months after bringing your baby, or child, home are a whirlwind of family and friends visiting, pediatrician appointments, nonstop grocery and drugstore runs and a complete and utter lack of sleep! Despite this craziness, I am going to suggest you make time to think about and discuss your finances. If there is one thing I know, it is that children do not cost less or take up less of your time as they grow! They eat more, outgrow their clothes, have birthday parties, need braces, require dance and sports accessories, attend summer camp programs and don’t get me started on college tuition!

Here are five great tips to consider when planning your financial success as a family:  

1. Prepare a Budget: Write down all of your new and obvious monthly expenses, such as diapers, baby wipes, bottles and formula, daycare if you both go back to work. What do you plan to spend on baby gear such as a crib and changing table, high chair, stroller, car seat? What are your typical, monthly, household expenditures?  Now is the time to rework your budget so that you include the new expenses and they do not catch you open-mouthed and unaware after a couple months. Lack of sleep and financial strain are not good for one’s health. Prepare yourself and avoid unnecessary surprise and stress at the end of the month.

2. Update your Wills and Life Insurance. Now is the time to insure your family’s security if something were to happen to you. “You need a will, not only to determine who are the beneficiaries of your assets, but also the manner in which they pass. If you prefer your assets to be protected for your child until she reaches a certain age, you may want to create a trust for her,” says Sharon L. Klein, President of Wilmington Trust in the New York Metropolitan region. You will also want to make the important decision about who should raise your child, should you not be around, and name the guardian of your choice in your will. In addition, you want to prepare health care proxies, which allow someone of your choosing to make medical decisions for you in the event you are unable to do so, and “Living Wills”, for each spouse, which express the desire not to be kept alive by machinery. If your family relies on you financially, you need life insurance! Klein notes that “term life insurance is a less expensive way to protect your family than whole life insurance, in the event that the bread winner has an unexpected, early demise.” Have you considered how your spouse will afford the mortgage? You may want to also consider purchasing life insurance on the non-working spouse. If the non-working spouse passes, this insurance will pay for necessary child-care, so the working spouse may continue to work. Klein warns, however, “that life insurance does not pass under your will, rather it has a separate beneficiary designation, so it is critical to insure that the insurance passes in a manner that dovetails with your overall estate plan.” Of course, if you are a single parent it is readily apparent that you must make these decisions, in advance, so that it is not the court or a family member who determines your child’s future. You are best advised to avoid the on-line sites, which allow you to prepare “do it yourself” wills. When it comes to the critical decisions that will impact your cherished family and your hard-earned assets, you should seek the assistance of a lawyer to customize your plans to best fit your circumstances. 

3. Prepare for Retirement and Emergencies. Retirement may seem like a long way away, but this is surely an expense we all face eventually. Thomas Henske, Certified Financial Planner and Partner at Lenox Advisors, notes that “Putting yourself in a good place for retirement savings is all about building good habits. It is more important that you establish a regular savings routine (monthly, for example) than actually getting the right amount to save at the start of this endeavor. You can always adjust the amount up a few dollars without it making a noticeable difference to your lifestyle.” Henske advises to save regularly, not just when the mood hits you. If your employer has a 401k plan, sign up for automatic pre-tax deductions from your paycheck to go to your account. Employers often match their employee’s pre-tax contributions up to a certain amount. This is free money, so look into it! If the 401k is not available, it is easy to set up an IRA. Retirement loans are not easy to find late in life. The sooner you start saving for retirement, the more money you will have thanks to the compounding of interest and dividends.  

A rainy day fund for unexpected emergencies is also an important item to include in your budget. Experts say it is good to have six to nine months of salary put aside in case of unexpected job loss or a big emergency. If only one of you is working, you may want to put away closer to one year’s salary. You may have 30 or 40 years to save for retirement, but one never knows when you will have to dig into emergency savings funds for a new car, new roof, or medical care. It is important to set up this savings account so that if that emergency arises, you do not have to dip into a retirement fund and suffer taxes and penalties for early withdrawal.

4. Think about starting a College Fund. The cost of college is going up, up, up! The good news is you have close to 20 years before this big ticket item hits your budget. There are also many venues for scholarships, loans, and grants to help with the cost of college. There are many options, such as stocks and bonds, to begin putting a little away for college now, which will grow and save you a bundle down the road. Many experts recommend 529 accounts because they are designed specifically to save for tuition, to compound and grow tax free and they are easy to set up. Money withdrawn for future college expenses will be tax free, but experts caution to be comfortably saving for retirement before you start putting away money for college.

5. Establish A Regular Schedule. Above all, set up a regular schedule to discuss your savings and financial goals with your partner, or if single, revisit your progress and determine whether you are on track to meet your goals. It takes time to change spending and savings habits. Keep the channels of communication open with your partner and make sure to plan for grown up fun and time out!

Even with Landmark Decision for Same Sex Parents in New York, Second Parent Adoption is Indispensable

Let me start with the legal truth that an adoptive parent is a legal parent and has the same rights and responsibilities toward his or her child as a biological parent. 

On August 30, 2016, the New York State Court of Appeals ruled decisively in favor of parenting rights for unmarried, same sex couples.  In The Matter of Brooke S. B. versus Elizabeth A., the Court ruled that with respect to an unmarried couple, a partner with a non-biological, non-adoptive relationship to the couple’s child may be legally recognized as a parent and allowed to seek custody and visitation rights.  The non-biological, non-adoptive partner, however, must show by clear and convincing evidence that the parties agreed to conceive and raise the child together to establish his/her right to custody and visitation.

While this ruling is good news for non-biological parents and non-adoptive partners, relying on the new precedent and forgoing adoption may be dangerous.  It is true that along with marriage equality, many states have begun to recognize a more modern and flexible definition of who is a legal parent.  Laws on same sex parenting, however, still vary from state to state.   The fact remains, that only an adoptive parent of a non-biological child has the same unequivocal rights and responsibilities toward his or her child as a biological parent.  

Adopting your non-biological child is safe, responsible parenting.  It can be accomplished quickly and inexpensively.  No one wants to be kept away from his or her child pending the outcome of a lengthy custody battle.  Obtaining the second parent adoption order saves one from the burden of proving his or her status as a parent in the event of divorce, separation, and even death of a partner.  I envision scenarios where the couple separates and the biological parent moves with the child to a state with less friendly parenting laws, or passes away, and the extended family claims custody of the child over the non-biological partner.  Adoptions are court orders, which all states are required, by the Full Faith and Credit Clause, of the Unites States Constitution, to recognize.   This guarantees a parent’s rights and takes the guesswork out of whether one has standing to sue for custody of one’s child.

An adoptive parent is a legal parent and may make all the same decisions for the child as the biological parent.  An adoptive parent has the right to make decisions concerning the child’s education, health and medical well - being.   An adoptive parent is financially responsible for the child and the child is able to inherit from his or her adoptive parent even in the absence of a will.  A non-adoptive parent may find obstacles in claiming his child as a dependent for health or tax benefits and may not even be allowed to provide permission for school field trips.

The requirements to complete a second parent adoption in New York are not lengthy.  They are the same requirements for a step-parent adoption among married couples.   You will need to retain an attorney and obtain a home study from a licensed social worker.  The court will require medical and financial updates, letters of reference and criminal and abuse background checks.  Your attorney will prepare several affidavits and a petition for adoption for your signature.  The court will hold a 5-10 minute finalization hearing, at which you will be invited to bring friends and family to witness and celebrate the adoption.   The whole process should not take more than 4-6 months.  The benefits, however, exist for a lifetime.   Your family is worth it.

http://www.nytimes.com/2016/08/31/nyregion/new-york-court-parental-rights.html

https://www.nycourts.gov/ctapps/Decisions/2016/Aug16/91-92opn16-Decision.pdf

http://www.slate.com/blogs/outward/2016/08/30/in_new_york_a_landmark_ruling_for_estranged_gay_and_lesbian_parents.html

When, Why, and How Do I Get a New Social Security Number for my Adopted Child?

WHEN

As soon as you receive your adopted child’s birth certificate, it is time to make an application for a new Social Security number. 

WHY

You need a Social Security number to:

  • claim your child as dependent on your income tax return;
  • open a bank account for your child;
  • buy savings bonds or start a college savings fund for your child;
  • get medical coverage for your child; or
  • apply for government services for your child.  

If your adopted child already has a Social Security number, it is important to obtain a new one to maintain confidentiality, and to prevent fraud or misuse. The first Social Security application for your child was likely filled out at the hospital by his birth mother and his first card/number was mailed to her. With a new Social Security number, you will no longer share the information with his birth mother.

If you are in the hospital when your adopted child is born, try to speak with the nurse or social worker in charge of the birth certificate paperwork. If possible, avoid having the birth mother apply for the Social Security number when she fills in the birth certificate paperwork. Applying for the baby’s first Social Security number is a much quicker process, than changing it later. 

HOW

You must apply, in person, at the local Social Security Administration (SSA) Office. Unlike the passport application process, your child does not have to be present at the time of application. There is no cost for a Social Security number and card. Your attorney cannot apply for you! The application, Form SS-5, is online and may be downloaded and filled in before you go.  (www.socialsecurity.gov/online/ss-5.pdf)

  • You will be required to provide at least two documents proving your baby's age, identity, and citizenship status. You will need your child's original birth certificate. By this, I mean the one that was issued after the adoption was finalized. The other document can be your child's hospital birth record or other medical recordAll documents must be originals or certified copies. They will not accept photocopies!
  • You must provide proof of your own identity. Your driver's license and passport are both acceptable.
  • Number 11 on Form SS-5 asks if the person has a prior number. Answer this question “no,” even if you are not sure whether your baby received a prior number. You are applying for a number using your child’s new name and your name as parent. If you answer “yes”, or “unknown”, the SSA office will spend time trying to track the first number, link it to the newly issued number, and then cancel the old number. Your child, with his new adoptive identity, does not have a Social Security number and it is truthful to answer “no” to this question. The new number will be issued easily and expeditiously. Of course, if you are aware that the birth mother filled in the child registration form at the hospital, and used your last name on this and/or birth certificate forms, you must answer “yes” to this question because your child’s original number will be linked to the same name and it is important to have it cancelled.

Find the SSA office nearest you by logging on to the SSA's Office Locator at www.socialsecurity.gov/locator

Once you've submitted your application, you should receive a Social Security card in 6 to 12 weeks. It may take substantially longer to process your application if your child is one year of age or older, because the SSA will contact your state's Department of Vital Statistics to confirm that the birth certificate you have provided is valid.

If you need to claim child-related tax breaks before your child’s adoption has finalized, you may obtain an Adoption Taxpayer Identification Number (ATIN) to use before obtaining the Social Security number. To apply for an ATIN, complete IRS Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions. The ATIN will be valid for only two years, at which point you can extend it if your child's adoption is still not final. Once the adoption is final, you must stop using the ATIN and get a social security number for your child following the process described above.

If you are adopting a child from another country, you will have to wait until the adoption is final and your child has entered the United States before you can obtain a Social Security number for your child. Once that happens, you can use the process described above. 

Social Security number misuse:

If you think someone is using your child's Social Security number fraudulently, you should file a complaint with the Federal Trade Commission by: