Representative Diane Black (R-Tenn.) introduced the Adoption Tax Credit Refundability Act of 2015 last week along with Rep. Trent Franks (R-Ariz.), Rep. Danny Davis (D-Ill.), and Rep. Jim McDermott (D-WA). The legislation would make the current adoption tax credit fully refundable in order to help lower-income families offset the costs of adoption.
The adoption tax credit was made permanent in the American Taxpayer Relief Act of 2012. However, that law did not contain the refundability provisions that were a part of the adoption tax credit in 2010 and 2011. The Adoption Tax Credit Refundability Act would restore the refundable portion to the credit.
While the current adoption tax credit allows families to claim up to $13,400 per child for expenses including adoption, attorney, and travel fees, adoptive families can only benefit if they have federal income tax liability.
Low- or moderate-income families typically have no tax liability and will not benefit from a non-refundable credit since a non-refundable credit gives taxpayers a refund of federal income taxes, but only up to the amount of taxes they otherwise had due.
The Adoption Tax Credit Working Group, a combined initiative of 139 adoption and child welfare organizations, gives an applicable example:
“A family has $5,000 in federal income taxes withheld from their paychecks during the year. When they do their taxes, they look at the tax tables and based on their adjusted gross income, their federal income taxes are $1,000 (this is their tax liability). If there were no adoption credit, they would be due a refund of $4,000. The family had qualified adoption expenses of $8,000.