How Does Adopting a Child Impact Taxes in Illinois?
Families and individuals considering adoption face many obstacles, including financial considerations. To help ease the financial burden, both the federal government and the state of Illinois offer adoption tax credits that can make a significant difference in the adoption journey.
What is the Federal Adoption Tax Credit?
The federal government offers a non-refundable tax credit to eligible adoptive parents, helping offset qualified adoption expenses. As of 2023, the maximum credit amount is $15,950 per child, however, it’s important to note that this credit changes yearly. Any credit difference may also be carried forward for up to five years.
Qualified adoption expenses include reasonable and necessary fees directly related to the adoption, including:
- Adoption fees
- Court costs
- Attorney fees
- Travel expenses
To claim the federal adoption tax credit, the IRS Form 8839, Qualified Adoption Expenses, must be filed along with tax returns.
What is the Illinois Adoption Tax Credit?
In addition to the federal adoption tax credit, the state of Illinois offers its own adoption tax credit, providing further financial relief to adoptive parents. Illinois residents can claim a tax credit up to $2,000 per child for qualified adoption expenses. For adoptions of children that are Illinois residents and over one year old, the tax credit can be up to $5,000.
To claim the Illinois adoption tax credit, the Schedule 1299-C form should be filed along with the family’s state income tax return. Like the federal credit, qualified adoption expenses for the Illinois credit include adoption fees, court costs, attorney fees and other related expenses.
Tax Credits for Special Needs Children
Adoptive parents of children with special needs are automatically entitled to the full adoption tax credit and do not need to provide qualifying adoption expenses. Any children adopted from the foster care system is considered to be a special needs child for adoption tax credit purposes.
While in the process of adoption or planning to do so, families and individuals should explore the adoption tax credits offered at both the federal and state levels. These credits can be valuable resources to help alleviate some of the financial aspects associated with expanding a family through adoption.