ATC--what happens to unused credit?
Alright, I am sure the accounting gurus on this site are about sick and tired of answering these questions, but here it goes....

I realize that things will depend on exact numbers, but if someone could tell me if I understand the gist of this correctly, I would appreciate it.

My husband and I usually overpay our federal taxes by about $3,000 every year (I do realize this is an interest free loan to the feds, but we still do it anyway). That means that after all of our deductions, normally we have a tax liability of $8,000 or so. This year, our tax liability (before the ATC) will be even less since we have Little Man. So, let's say we have $6300 in tax liability before we figure in the ATC.

We will have paid about $11,000 out of our paychecks in during the year.

We will finalize at the end of next month, and have had well over the $12,xxx credit limit in eligible adoption expenses. So, when we file our taxes this year, since the ATC is no longer refundable, this is how I think it will go...

1. We will file for the full $12,xxx credit.
2. Our liability will only be $6,300 or so, so we will apply that much of the tax credit to this year's return.
3. That credit, and our overpayment before the credit should result in us getting all of the taxes we've paid back ($11,000).
4. (this is where I get confused a bit) Since the ATC is not refundable this year, we should be able to carry over the remaining $6,000 or so in unused credit that we have qualified for but not used to future years.
5. For 2013, even though there is no ATC for DIA non-special needs, since we filed for it and qualified for it by finalizing in a year that had the credit, we should still have $6,000 or so to apply to next year's $6,300 tax liability, so we should also get back all but $300 that we paid next year too (so $10,700).

Am I correct in my understanding of what can happen next year, too?

I realize that this is subject to change based on my actual tax liability, but do I have the concept right?

Thanks for your help! Taxes are like Greek to me!
tonijustine said...
Am I correct in my understanding of what can happen next year, too?

I realize that this is subject to change based on my actual tax liability, but do I have the concept right?

Yes and yes. The ATC wipes out your 2012 tax liability, so you get back all of your withholding. The excess ATC of $6000 or so would be available to be applied against your 2013 taxes, so in your example you would get back most of your 2013 withholding also.
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