Many of us have heard about this looming possibility for that last couple of years. Now it is becoming a reality as the House Ways & Means Committee have released their most recent GOP Tax Plan, which includes the complete elimination of the Adoption Tax Credit (ATC).
The ATC, which has existed since 1996, assists families with the financial burden that in incurred through (mostly private) adoption, as foster care adoption is usually at no cost to the adopting family. The current form of the ATC in 2017 is a maximum tax credit of $13,570 and is only eligible for families making less than $243,540. The maximum credit amount begins to diminish for families that have an annual adjusted gross income (AGI) starting at $203,540 up to $243,540 where it goes to zero. It is a one-time credit that can be carried over on your tax account for a maximum of five years. This is a non-refundable credit, which means it can only be applied toward a families tax liability. For this reason, most families making an AGI less than $100K usually do not benefit or benefit very little from this credit.
Adoption advocates have been pushing for years for a return to refundability since helping lower-income adoptive families and encouraging individuals to adopt children were central goals of the ATC in the first place. Eliminating the credit entirely poses an obvious and major hurdle to that goal. If passed, it will be harder and more expensive for American families to adopt. For the children in the United States waiting to be adopted and brought into a loving home – the current proposal as it stands will make that much tougher to do.
There is also a second change that is less known but hard to fathom it's approval. The GOP is looking to eliminate the tax exclusion of employer-based adoption assistance programs. Less than 7% of the employers in the United States offer some sort of assistance to families that adopt, either in the form of reimbursement or time off work. Thus far, the value of this assistance has been excluded from the taxable income of an employee. The change proposed by the GOP Tax Plan will simply make this assistance count for the purposes of federal income tax, increasing the tax burden on families that adopt and utilize any employer-based assistance.
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