Health reform law extends, enhances adoption credit

Christine Daves and son
Christine Daves and her 4-year-old son, Elliot, whom she and her husband adopted from Korea in 2006.
MPR Photo/Elizabeth Stawicki

Tucked into the 2,000-page federal health care law is a provision designed to help parents defray some of the costs of adoption.

The law increases the federal adoption tax credit by about $1,000, to more than $13,000 for the costs of finalizing a domestic or foreign adoption. It also aims to help lower income families adopt. The credit was due to end this year, until the new health care law extended it until December 2011.

A Minneapolis couple said the tax credit was a big help to them when they adopted a son four years ago.

Christine Daves, 36, and her husband Brian, 46, adopted Elliot from Korea during the summer of 2006, when the child was four months old.

The Daves decided to adopt because they had a family history of some medical problems. Christine Daves says the one-time credit was a huge help, since the cost of Elliot's adoption totaled nearly $35,000.

"It's just amazing how many little expenses there are. Getting his certificate of citizenship was another $200. Getting the background checks are another ... couple hundred here and couple hundred there," she said. "I kind of got to the point where it was just another check, and it's just part of it, and it adds up a lot."

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The process of finalizing an adoption can be very expensive. Children's Home Society & Family Services, which facilitated the Daves' adoption, says those expenses typically average between $25,000 and $35,000. Last year the society helped complete 581 foreign and domestic adoptions.

"While the tax credit doesn't make people adopt, it helps people who want to adopt, adopt sooner."

In 1996, with the support of President Bill Clinton and House Republicans, Congress passed a tax credit to encourage adoptions, particularly foster care adoptions.

The tax credit is available for all legal adoptions. It's helped families like the Daves recoup some of their adoption-related costs, including fees, attorney and court costs and travel expenses.

"While the tax credit doesn't make people adopt, it helps people who want to adopt, adopt sooner," said Kim Herman of Children's Home Society & Family Services. "When it's explained to them that some of the costs can be defrayed through this credit, it really helps them make that decision, and have that child home sooner then they thought was possible."

The credit was due to expire this December, but Democrats who oppose abortion pushed to include it in the health reform legislation. The new law also raised the credit about $1,000 -- to $13,170.

The new version of the credit includes a key change that some hope will allow lower-income parents to use it.

The full credit is available for those with adjusted gross incomes up to about $180,000. Critics have argued that it benefited those with higher incomes more because families could get back as much in credit as they paid in tax that year.

Those with lower incomes paid less in taxes, and couldn't claim the full credit. They had to carry over the rest in following tax years. But under the new law, even adoptive parents that pay no tax at the end of the year will get the credit, in the form of a tax refund.

Adam Pertman heads the Evan B. Donaldson Adoption Institute, a nonpartisan, nonprofit national policy and research group. Pertman says making the credit refundable is a move in the right direction, but he said lower-income families who want to adopt need funding help up front.

"A credit comes after you've already paid. So you were already able to afford that sum of money in the first place. So what it doesn't do is allow people who don't have resources to gain resources with which to adopt," said Pertman.

The credit is due to expire at the end of 2011. Some adoption advocates say they'll push for Congress to pass new legislation that will extend the credit indefinitely, since many adoptions can take years to complete.