Wednesday, March 17, 2010

Understanding the adoption tax credit for second-parent adoptions

I think everyone knows that marriage affects the amount of taxes we pay; sometimes we pay more as married couples and sometimes less. Tax savings is not a good reason to support same-sex marriage because, among other things, for equal earning couples they will pay more as a married couple than as two single people. (The marriage "bonus" subsidizes families with one high income earner; the marriage "penalty" hurts families with two relatively equal earners).I'd like to see taxation based on individual status not marital status, as many countries do, but that's another story....

Well, if you are doing a second-parent adoption, from a federal tax standpoint it is definitely better not to be married. That's because the adoption tax credit allows a person who adopts a child to claim a credit that can be as high as about $12,000, and this credit greatly reduces the expense of the second-parent adoption because it applies to the cost of both a home study and legal fees. The credit is not available for step-parent adoptions. Since federal law does not recognize a same-sex couple as married, even if they are married under state law, their second-parent adoption is not a step-parent adoption and the adopting parent can claim the credit. The credit is also available if the couple jointly adopts a child that is not the child of either of them. Unfortunately, it is not available for adoptions connected to surrogacy arrangements, so a second-parent adoption by the partner of a man who is a biological father of a child born through surrogacy cannot claim the credit.

There is also no tax credit for obtaining a parentage order. In a jurisdiction that confers parentage on a nonbiological parent through a statute, without an adoption, (like our DC parentage statute), it makes more conceptual sense to obtain an order of parentage from the court; the nonbio mom is already a parent and so the court order confirms that and makes it subject to respect in other states as court judgment. As I say repeatedly, a mother should not have to adopt her own child! When considering your options, however, the fact that a second-parent adoption will be partly subsidized by the adoption tax credit may figure in your thinking, so be sure to discuss it with your lawyer.

Here is an article that explains the rule in great detail and in as close to plain English as you'll likely find in an article about tax law. Plus it's great to see our families explicitly included in the analysis in a very matter of fact way. Thanks to Florida attorney Elizabeth Schwartz for bringing this article to my attention.

3 comments:

Leland Traiman said...

Nancy, you are partially correct about not taking the adoption tax credit in a surrogate situation. One cannot take the credit for the cost of the surrogate and related expenses. However, one can take the adoption tax credit for the legal fees associated with the second-parent-adoption by the non-biological parent.

Randy said...

I like this link, since it is a common topic in daily life. I saw it also on a magazine related to Generic Viagra

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