How to Pay for Adoption

Adopting a child can be expensive. Fortunately, there are many resources that can help. Here is a look at the costs of adoption and the various forms of financial assistance that may be available to you.

What Does Adoption Cost? 

Adoption costs in the U.S. vary widely. Adopting a child who is currently in government-sponsored foster care may cost a few thousand dollars, while the cost of adopting through a private agency can reach up towards $60,000. There are also independent agencies outside of the public child welfare system with costs ranging between $20,000 and $45,000. Adopting a child from another country can run up to $50,000.

What Resources Are Available to Help Pay for Adoption?

Money to help defray the cost of adoption is available from both governmental and private-sector sources. These are the major ones: 

Federal and State Adoption Assistance for Children in Foster Care

The federal government and state governments offer adoption subsidies for children adopted from foster care. To be eligible, the child must meet certain criteria, which can vary from state to state. “The term ‘eligible’ most frequently refers to children who are school-aged; part of a sibling group; children of color; or those with specific physical, emotional, or developmental needs,” according to the Children’s Bureau, which is part of the U.S. Department of Health and Human Services (HHS). Assistance can include “monthly cash payments, medical assistance, social services, and nonrecurring adoption expenses.” More information on these benefits and how to apply for them is available as part of the HHS’s Child Welfare Information Gateway.

Federal Tax Credits for Adoption

The federal government provides a tax credit to adoptive parents. To be eligible, the adoptee must be “under the age of 18 or […] physically or mentally incapable of self-care,” according to the Internal Revenue Service (IRS). Adopting the child of the taxpayer’s spouse does not qualify.

 Eligible expenses include:

• Reasonable and necessary adoption fees
• Court costs and attorney fees
• Travel expenses
• Other directly related expenses

The adoption tax credit is subject to income limits. In 2022, it begins to phase out if the taxpayer’s modified adjusted gross income (MAGI) is $223,410 or higher and it phases out entirely at $263,410. In 2023, the adoption tax credit begins to phase out if the taxpayer’s MAGI is $239,230 and it phases out entirely at $279,230. The maximum tax credit for 2022 is $14,890, and $15,950 for 2023.

Some states also offer adoption-related tax credits on their state income taxes.

Grants and Loans for Adoption

In addition to governmental aid, there are private foundations and other organizations that offer grants and loans to adoptive parents. HHS lists some of them as part of its Child Welfare Information Gateway. 

Employer-Sponsored Adoption Benefits 

Your employer might be another source of help. A growing percentage of companies have adoption assistance programs. These programs may not only provide financial assistance but also other benefits, such as parental leave. 

Employer financial assistance may take the form of a lump-sum payment or reimbursement for expenses up to a certain maximum. According to the Dave Thomas Foundation for Adoption, those benefits can range anywhere from $500 to $35,000, with $9,000 being the average maximum.  

As an added bonus, employer-provided adoption assistance is excluded from the employee’s taxable income up to the same limit as the federal tax credit ($14,890 in 2022, and $15,950 in 2023). The exclusion also phases out over the same income range (from $223,410 to $263,410 in 2022, and from $239,230 to $279,230 in 2023).

For example, if an employee has $30,000 in adoption expenses and meets the income requirements, they could take a tax credit for $14,890 in 2022 and also exclude up to another $14,890 in employer assistance from their taxes.

Tapping Your Retirement Accounts

If you participate in a 401(k) plan at work or have an individual retirement account (IRA) on your own, they could also be a source of funds. Normally, if you’re under age 59½, any withdrawals you make will be subject to a 10% early withdrawal penalty on top of the income tax you owe. Since the passage of the SECURE Act in 2019, however, adoption is one of the exceptions to the penalty.

Under current tax law, individuals can take a penalty-free distribution of up to $5,000 to pay for adoption expenses “during the 1-year period beginning on the date on which the child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized.”

The law also specifies that the adoptee must be an eligible adoptee, which the IRS defines as “any individual (other than a child of the taxpayer’s spouse) who has not attained age 18 or is physically or mentally incapable of self-support.”  

Under these rules, a married couple could take distributions totaling $10,000.

Home equity loans and home equity lines of credit (HELOCs)

As long as you have sufficient home equity and meet the lender’s other financial requirements, you can take out a home equity loan or home equity line of credit (HELOC) for any purpose you wish, including adoption. A personal loan from a bank or other lender could be another option, but they tend to have significantly higher interest rates.

The Bottom Line

There are many ways to pay for adoption, from government programs to private and employer-based ones. You can also borrow money if necessary, including from your retirement plans. And once you are a parent, you will qualify for childcare tax benefits, as well.