taxmap/instr2/i8839-002.htm#TXMP0d99ac79
Definitions(p2)

An eligible child is:

• Any child under age 18. If the child turned 18 during the year, the child is an eligible child for the part of the year he or she was under age 18.
• Any disabled individual physically or mentally unable to take care of himself or herself.

Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.

Qualified adoption expenses include:

• Adoption fees,
• Attorney fees,
• Court costs,
• Travel expenses (including meals and lodging) while away from home, and
• Re-adoption expenses relating to the adoption of a foreign child.

Qualified adoption expenses do not include expenses:

• For which you received funds under any state, local, or federal program,
• That violate state or federal law,
• For carrying out a surrogate parenting arrangement,
• For the adoption of your spouse's child,
• Paid or reimbursed by your employer or any other person or organization, or
• Allowed as a credit or deduction under any other provision of federal income tax law.

In most cases, employer-provided adoption benefits are amounts your employer paid directly to either you or a third party for qualified adoption expenses under a qualified adoption assistance program. But see Child with special needs, later.

A qualified adoption assistance program is a separate written plan set up by an employer to provide adoption assistance to its employees. For more details, see Pub. 15-B, Employer's Tax Guide to Fringe Benefits.

Employer-provided adoption benefits should be shown in box 12 of your Form(s) W-2 with code T. Your salary may have been reduced to pay these benefits. You may also be able to exclude amounts not shown in box 12 of your Form W-2 if all of the following apply.

• You adopted a child with special needs. See Column (d), later, for the definition of a child with special needs.
• The adoption became final in 2012.
• Your employer had a written qualified adoption assistance program as described earlier.

The following examples help illustrate how qualified adoption expenses and employer-provided adoption benefits apply to the maximum adoption credit allowed.

Madelyn paid $10,000 in qualified adoption expenses for the adoption of an eligible child. Under a qualified adoption assistance program, Madelyn's employer reimbursed her for $4,000 of those expenses. Madelyn may exclude the $4,000 reimbursement from her income. However, because of the employer reimbursement, $4,000 of her expenses no longer meet the definition of qualified adoption expenses. As a result, Madelyn's maximum adoption credit is limited to $6,000 ($10,000 – $4,000).

Haylee paid $20,000 in qualified adoption expenses for the adoption of an eligible child, including $8,000 of legal fees. Under a qualified adoption assistance program, Haylee's employer reimbursed the $8,000 of legal fees. Haylee may exclude the $8,000 employer reimbursement from her income. However, because of the employer reimbursement, $8,000 of Haylee's expenses no longer meet the definition of qualified adoption expenses. As a result, Haylee's maximum adoption credit is limited to $12,000 ($20,000 - $8,000).

The facts are the same as in Example 2 except that instead of reimbursing Haylee for her legal fees, the employer directly paid the $8,000 to the law firm. The employer's payment of the legal fees produces the same result as the employer's reimbursement of the legal fees in Example 2 ($8,000 exclusion and $12,000 credit).

Paul paid $30,000 in qualified adoption expenses to adopt an eligible foreign child, and the adoption became final in 2012. Under a qualified adoption assistance program, Paul's employer reimbursed him for $12,650 of those expenses. Paul may exclude the $12,650 reimbursement from his income. The remaining $17,350 of expenses ($30,000 – $12,650) continue to be qualified adoption expenses that are eligible for the credit. However, Paul's credit is dollar-limited to $12,650. The remaining $4,700 ($30,000 – $12,650 – $12,650) may never be claimed as a credit or excluded from gross income.