BREAKING NEWS: Last Wednesday, February 26, Chairman Camp of the Ways and Means Committee released his much anticipated tax reform proposal and it eliminates the adoption tax credit. This breaking news makes our advocacy efforts that much more critical. Now that an actual legislative proposal has suggested eliminating the credit altogether, we need to ensure that every single Member of Congress hears from us about its importance!The aforementioned proposed legislation is removing adoption tax credits in total. There would be no adoption tax credits of any kind. What is interesting to me stark contrast between helping mothers pay for abortions with government funding and the refusal to help families care for adopted children with governmental funding. To me at least, this is backward and opposite thinking, showing that our society would rather someone abort a baby than have to take care of the child. In order to fully understand my point and the concern people should have over this legislation, please let me explain a few facts about adoption, this legislation, and adoption related costs:
There are two types of adoption tax credits that have been used in the past few years. The first is the adoption tax credit as spoken of in the above quote. This tax credit is non-refundable. What this tax credit means is this: People who adopt a child and can prove their expenses are eligible for (to use round numbers) $12,000 of tax credit towards their federal tax liability for the next 5 years, but it is non-refundable. The fact that is it non-refundable is a key to this tax credit. In possibly oversimplified terms, the tax credit of $12,000 can only be utilized if the family has a tax liability on their federal return and the tax credit can only be used to negate their tax liability; they cannot increase their federal income tax return by using this tax credit. Again, for number sake lets say someone owes $2,000 to the federal government in income tax. If they adopted during that fiscal year, the family can apply $2,000 of the tax credit to negate their tax liability, meaning they do not get a return and the government does not get money back. The adoptive family then has $10,000 that it can utilize for the next 4 years. If a family has no tax liability and is scheduled to receive an income tax return, the tax credit cannot be used and serves no purpose for that year. Again, they have 5 years or $12,000 to apply to tax liabilities for the Federal government, but if the family never owes according to the tax return, then the tax credit is useless to the adoptive family.
The second type of adoption tax credit is known as a refundable tax credit is a tax credit. This credit is applicable to those who adopt and can prove expenses of (again to use round numbers) up to $12,000. This tax credit, since it is refundable, is simply added to your return or your tax liability in order to help offset the cost of the adoption. For instance if a family was due a federal tax refund of $500 and they had adopted in that tax year, the family's refund would be $12,500. If the family owed $500 to the federal government and had adopted then the family would get a refund of $11,500. The difference in a refundable and non-refundable tax credit cannot be understated.
Here's why this any adoption tax credit is important: Anytime someone has the possibility of getting help, monetarily, to pay for an adoption they are more open to going through the process. Let's be honest, the cost to adopt a child is high... When we adopted Reece our total adoption costs were on the lower end of the adoption cost spectrum, which is generally considered $25,000-$35,000 (the total cost will be higher for Gentry who will be born around May of this year) .... AND Reece was adopted from Florida, not Ecuador or Uganda where the total costs are much higher due to travel and other costs. Yes, we received some grants and other financial help, but consider if the adoption costs were offset by almost half because of a refundable tax credit. This was the case for two years (2010 and 2011) but then in 2012 the credit was legislated to become non-refundable. If the adoption costs were offset by a refundable tax credit of $12,000 how many more people would be at least open to adoption? How many more children in the USA and around the world would be in loving homes? If you thought about adoption and said, "it costs $30,000 to adopt from Uganda, there is no way my family can afford that!" BUT if you knew there was $12,000 extra coming to you on your tax return then your cost immediately goes to $18,000 and that, my friends, is a much more workable number.
The tax credit in 2012 and following is a generous offer, please do not misunderstand me. But at the same time, a family that makes a decent living that wants to adopt cannot expect to receive help from the non-refundable credit. I am EXTREMELY thankful that those who do owe taxes and adopt can receive help for their tax liability, but the numbers show not very many people can take advantage of that adoption perk.
I pray for the day, whether I personally get the advantages of it or not I do not care; I pray for the day that there is a more permanent, refundable adoption tax credit to help people pay for adoption. There is legislation and sponsors for bills like this in both branches of Congress, but it seems that currently it is not going to be voted upon. If you would like to contact your Congressman/woman you can go to the link below and it will give you more details. If you hunt around on the home page for that link, there are suggested wording for letters, emails, etc... I encourage you to join me to try to help families and children.