Qualified Adoption Expenses (QAE)

What Are Qualified Adoption Expenses (QAE)?

Qualified adoption expenses are the necessary costs paid to adopt a child younger than 18 years of age or any disabled person who requires care. In the United States, qualified adoption expenses (QAE) are those expenses that the Internal Revenue Service (IRS) defines as reasonable and necessary, including adoption fees, court costs, attorney fees, travel costs, and other expenses directly related to the adoption. These fees can be used to claim an adoption credit or exclusion that reduces the adopting parents' taxable income.

Key Takeaways

  • Qualified adoption expenses (QAE) are the necessary costs paid to adopt a child younger than 18 years old or a disabled person who requires care.
  • Qualified adoption expenses are IRS-defined reasonable and necessary adoption-related costs, including court costs, adoption, and attorney fees.
  • The maximum credit amount allowed for adoptions is $14,440 per child for 2021 and $14,890 per child for 2022.

Understanding Qualified Adoption Expenses (QAE)

The Internal Revenue Service allows you to offset your tax bill with a credit for your qualified adoption expenses as long as you meet certain eligibility requirements. To report your qualified adoption expenses, you'll use IRS Form 8839.

Eligible taxpayers use IRS form 8839 to provide the information required to claim the adoption credit on their federal tax returns. Taxpayers must provide the adopted child's first and last names, year of birth, and identifying number. They must also note whether the child has special needs or is foreign-born.

The tax credit for QAE phases out for taxpayers whose modified adjusted gross incomes exceed a certain threshold. Taxpayers may not claim the adoption credit for any fees paid or reimbursed by an employer or government program. They also may not claim the credit when adopting a spouse's child.

If you paid qualified adoption expenses to adopt a child who is a U.S. resident or citizen, then you may be eligible for the credit, even if the adoption has not been finalized or was finalized in a different tax year. You may also qualify for the credit if you paid expenses to adopt a foreign child. Additionally, there are separate rules to claim the credit on Form 8839 if you adopt a child with special needs.

Maximum Qualified Adoption Expenses

The maximum credit amount allowed for adoptions is $14,440 per child for 2021 and $14,890 per child for 2022.

In addition, the adoption tax credit is no longer refundable, meaning that to recognize the full benefit of the credit, your total tax must be at least equal to the credit.

For example, if your total tax for the year is only $10,000, but you spend $14,000 in qualified adoption expenses, $10,000 is the most you can save in tax. However, if the entire credit is not used, any remaining amount can be carried forward for up to five years.

For the tax year 2021, as long as your modified adjusted gross income is $216,660 or less, you qualify for the full credit. The credit phases out as your income increases and phases out completely when your modified adjusted gross income exceeds $256,660.

For the tax year 2022, as long as your modified adjusted gross income is $223,410 or less, you qualify for the full credit. The credit phases out as your income increases and goes away completely when it exceeds $263,410.

Article Sources

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  1. Internal Revenue Service. "Topic No. 607 Adoption Credit and Adoption Assistance Programs." Accessed Dec. 28, 2021.

  2. Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.” Accessed Dec. 28, 2021.

  3. Internal Revenue Service. "About Form 8839, Qualified Adoption Expenses." Accessed Dec. 28, 2021.

  4. Internal Revenue Service. “2021 Instructions for Form 8839," Page 1. Accessed Dec. 28, 2021.

  5. Internal Revenue Service. "Rev. Proc. 2021-45," Page 9. Accessed Dec. 28, 2021.

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