I’ve been keeping a little list of things that come to me that don’t fit into an entry I’m working on, and this is one: the Federal Adoption Tax Credit, and who it benefits.
The Federal Adoption Tax Credit provides almost $11,000 in tax credits to families who adopt. All adoptions are eligible. It was designed to make adoption more affordable, to help people who might not otherwise have been able to afford to adopt. Most states also offer adoption credits; Michigan’s is about $1100, and can used after the federal credit has been exhausted.
$11,000 is a lot of money. Our original estimate of our adoption expenses was only about $15,000: $11,000 for agency fees, about $1500 for our home study, around $2000 for birthmother expenses, plus travel costs to Chicago, four hours from home, to take custody of the baby and stay until receiving Interstate Compact on the Placement of Children clearance to remove the baby from the state. A federal tax credit of $11,000 would have paid for most of that.
However, the structure of the credit limits its usefulness for many families. It’s not a refundable tax credit; this means that in any given year, you can only receive as much of it as you have paid in taxes, with the remainder of the credit carrying over to future years. Originally, the credit was also time limited—you could only use as much of it as you accessed in four years.
By contrast, for instance, the Earned Income Tax Credit is a refundable tax credit—this means that you get the whole credit even if it exceeds your withholding for the year. When I was eligible for the EITC, I often got, say, $4000 back on my taxes despite having paid only $1000 in withholding, The adoption tax credit doesn’t work that way; If a family has only paid $2500 in withholding, that’s the size of the refund they’ll get that year, with the remaining $8500 of the credit carrying over to future tax years.
Also, for mysterious reasons, expenses that quality for the credit cannot normally be claimed in the year in which they’re incurred, but in the next tax year. This is unlike every other deductible expense or tax credit; a friend of mine who does taxes for a living says she can't think of another instance where an expense can't be applied in the year it's incurred.
For our family, this meant that we paid adoption expenses as early as January of 2007—and received federal tax credit money to reimburse us for them in March of 2009. Furthermore, until three years ago when David’s income increased dramatically, our family had not had any federal tax liability for the better part of a decade. If we had tried to adopt during that time—and we weren’t poor, we were living on about $55,000 a year—we would not have been able to access the federal tax credit at all.
I know families who have not been able to use the tax credit because their federal tax liability is too low. I know families who have not been able to use the full credit because the time limit passed before they’d used it all (time limits have since been extended, or possibly done away with completely).
But even families for whom the credit is useable have to be able afford to pay expenses up front and then wait anywhere from 2 to 5 years for reimbursement.
The effect of the credit is, therefore, to make adoption more affordable for families who already could afford it, while continuing to exclude lower-income families.
People I know who’ve been involved with adoption since before the credit was instituted report anecdotally that agency fees went up across the board in the few years following its enactment. If agencies responded to the tax credit by raising fees, that means the money is probably going mostly to people who could, and would, have adopted anyway, rather than making adoption more accessible to lower-income families.
This is not about race; it’s about social class, and the way government either structured the credit to steer children into families with more money, or carelessly allowed it to happen. Either way, it’s a commentary on who deserves children and who doesn’t, especially when you consider that there is no corresponding Keep Your Baby Tax Credit, at least not for women like Yehva's birthmother.
One exception to the sweeping generalization I’m guilty of here is that the credit is available to families who adopt from foster care even if they have not incurred adoption expenses; out-of-pocket expenses for foster care adoptions are usually low, if there are any at all, so this could indeed be a big help to families interested in adopting some of the most hard-to-place kids.
