How likely is it that the Adoption Tax Credit will be renewed in 2013 and forward?

[*]The limit will be at least $12,150 -- the 2009 amount -- but will be indexed for inflation from 2010. [/LIST][/QUOTE] What does that mean? We will be adopting three children from foster care in 2012. Will we get anything? It would be nice, becuase we do need to finish our basement so we can keep fostering.

It means that you go back to the 2009 rules for the adoption tax credit. The maximum credit under those rules as written in the law is $10K per child effective in 2002, but the amount is indexed for inflation each year. The last time they computed it was in 2009, and the inflation-indexed amount was $12,150. The per-child credit would be inflation-indexed to 2012. Check out the [url=http://www.irs.gov/pub/irs-prior/i8839--2009.pdf]instructions to Form 8839 for 2009[/url] to get a better understanding. Under the previous rules, the credit is non-refundable, but you can carry over the unused credit for up to five years. You would be able to claim the credit for the year the adoption is finalized.

IRS has [url=http://www.irs.gov/pub/irs-drop/rp-11-52.pdf]announced[/url] that the maximum per child adoption credit (nonrefundable) for 2012 will be $12,650. Phase-out of the credit starts for taxpayers with modified AGI over $189,710 and is completely phased out for taxpayers with modified AGI more than $229,710.

Zanes Dad...thanks for the link! I read on page 9 that the credit for 2012 will be $12,650, however I didn't see anything related to it being non-refundable. Typically credits are refundable, and deductions only decrease your tax liability. (Typically). How do you know that the credit is non-refundable for 2012? Thanks again for your help!

I believe that the tax credit was only refundable for 2010,2011 (expires December 31, 2011). It was changed in 2010 to be refundable and unless this is renewed it will revert back to the previous status (i.e., non-refundable). I think one thing that you can do to take full advantage of the non-refundable credit would be to change your witholdings to a lower amount (in essence you will create the deficient in your tax liability). You wouldn't get it in a lump sum but you would still have access to that money.

Changing your withholdings won't change how much of the non-refundable credit you are able to take. It will only effect when you get the money - a little bit every month or a lump sum at the end of the year. You can only take the credit up to your total tax liability for the year. It makes no difference whether you paid that liability a little at a time out of your paycheck or in a lump sum at the end. My big beef with the tax credit being non-refundable is that it isn't available to much of the lower-to-middle income middle-class because their tax liability is too low after other deductions, leaving the only benefit to the higher income middle-class (the rich can't take it because of the upper income limit). Does it really make a difference if my tax liability is $15,000 and I take the credit for $13,000 leaving me owing $2,000 or if my tax liability is $0 and I take the credit for a "refund" of $13,000? Either way, I am $13,000 "richer" and the government is $13,000 "poorer", so why should it only be available to higher income earners? If they are going to make a credit to help people adopt, why lock out the people who need help the most?

Actually, it does say it on page 4, it's just in tax-legalese: FYI, I wouldn't say that credits are "typically" refundable. Looking at the [url=http://www.irs.gov/pub/irs-pdf/f1040.pdf]draft 2011 Form 1040[/url], lines 47-53 are the nonrefundable credits, and lines 64-71 are the refundable credits. It's a fairly even distribution.

It does actually change whether you actually get to see the money or not. I wasn't saying that you change the amount of the credit that you get to take. I was saying that you could actually get the money this way instead of seeing a $0 liability and having a $13,000 credit you can't use. For example, if I changed my withholdings so that I was getting more $ in my pocket each paycheck, then I would end up owing more at the end of the year which would come out of the credited amount....thus allowing me to "use" the money from the tax credit. The reason the government doesn't want it to be refundable is because if you don't have the liability to use the credit it doesn't cost them anything.

Nope. The previous poster was correct. It doesn't matter how you work it, the end result is the same, only the timing of the cash flows is different. This is because the nonrefundable tax credits are applied to your income tax liability before the refundable tax credits (which include taxes withheld and estimated payments). Here's a simple example: Let's say your annual gross income is $70,000 and your income tax liability is $4,000 (that's not your withholding, that's the tax calculated on your taxable income on Form 1040). Also assume in year 1 that you had a $12,000 nonrefundable adoption tax credit. Scenario 1: If you have $4,000 withheld from your paycheck every year, your take-home pay will be $66,000. But you will get the $4,000 withheld as a refund because $4,000 of your credit will be applied to your tax liability. So your net cash flow each year will be $70,000 ($66,000 take-home plus $4,000 refund), and at the end of three years your adoption tax credit will be completely exhausted. Scenario 2: If you have $0 withheld from your paycheck each year, your take-home pay will be $70,000. Your income tax liability of $4,000 will be offset by the adoption tax credit, so you will owe no tax and receive no refund. Your net cash flow each year will still be $70,000 and at the end of three years your adoption tax credit will also be exhausted. Hope this helps.

No. Let's say you pay in $4000 for your taxes, but you only end up owing $3000. You would get back the $1000 overpayment, PLUS, the $3000 that you owed for taxes. Total back $4000. And you would have used $3000 of the credit. If you pay in nothing, and owe the same $3000, you will get back $3000. In our case, with previous adoptions, we had no taxes taken out. Most years, we owed about 3k, so we got that money in our refund, plus 1k per child for the child tax credit. So, it doesn't matter if you withhold taxes or not, you will still get a benefit either way. The only people who are screwed are those who don't have ANY tax liability, or very low liability, so can't use the credit up within the 5 years. If you owe nothing to Uncle Sam, you will get nothing back, unless you had withholding taken out thru the year, which of course you would get back - but you'd get that back either way! Hmm, hope that makes sense!

Help make the adoption tax credit fully refundable for 2012 and 2013 by going to Change.org and sign the Economic Justice Petition: Make adoption fully refundable for the 2012 and 2013 tax year. Your signature is needed. [url=http://chn.ge/ns07q9]Economic Justice Petition: Make adoption costs fully refundable in the 2012 & 2013 Tax Years | Change.org[/url]

According to Save the Adoption Tax Credit: 'The bill to avert the fiscal cliff did make the adoption tax credit permanent. From what we can tell at this point, the bill did not make the adoption credit refundable. We'll provide additional information as we confirm it.' There is conflicting info on the web saying it wasn't part of the deal, but I am going with Save the Adoption Tax Credit on this until they say otherwise. They have a more focused approach in terms of getting the info in a timely and precise manner.

The Congressional Joint Committee on Taxation included the extension of the adoption credit in its [URL="https://www.jct.gov/publications.html?func=startdown&id=4497"]scoring of the bill[/URL]: The [URL="http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf"] summary of the adoption provisions from CCH[/URL] says: In any event, the version of the adoption credit that was permanently extended is the non-refundable version (IRC Section 23).

What does non refundable mean?

It means that to the extent the available credit exceeds your income tax liability, the unused credit is carried forward to the next tax year (and eventually expires after a certain time period - 5 years in the case of the adoption tax credit). A refundable credit, if it exceeds your current year tax liability, is refunded to you as if it were an overpayment of taxes. The earned income credit (EIC) is an example of a refundable credit. Non-refundable credit example: In 2012 you finalize the adoption of a child and compute an adoption tax credit of $12,000. Your income tax liability before credits is $4,500. Your 2012 W-2 shows federal income tax of $3,800 withheld from your wages. The adoption tax credit offsets your tax liability completely and the excess credit of $7,500 is carried forward to be used against your 2013 income tax liability. As a result of the adoption tax credit, your 2012 tax liability is zero and the $3,800 of federal income tax withheld is available as a refund.