Resources to Help Defray Adoption Costs

Federal Tax Credit

Effective January 1, 2002 the federal adoption tax credit was increased to $10,000 per child for domestic or international adoptions. This credit does not expire. You can get information about these tax rules at the I.R.S. web site -- www.irs.ustreas.gov/ or by calling the I.R.S. at 1.800.829.3676 and requesting Publication 968--Adoption Tax Credit.

State Tax Credits

Many states have tax credits for families adopting children from the public adoption agencies. Contact your State Adoption Specialist for more information.

Employee Benefits

• Roughly a quarter of the nation's employers offer some form of adoption benefits to their employees,
• Reimbursement of $2,000-$10,000 for specific adoption expenses
• Paid leave, in addition to or including vacation time, sick leave, or personal days.
• Unpaid leave (personal, medical, or child care) (ranges from 3-12 months)
• Medical expenses of the birth mother
• Seminars, classes, and/or counseling and support before and after placement

Even if your employer does not currently offer adoption benefits, ask about their availability. You may be able to persuade your company to begin offering them. Work with other employees interested in adoption, gather information for the employer, and present your case. Also, find out if your employer offers an Employee Assistance Program (EAP). This benefit was designed to help employees deal with dramatic personal situations. (For more information about employer benefits, including materials to help you request that your employer establish a program, call the National Adoption Center at 1.800.TO.ADOPT or contact your corporate human resource department about the availability of benefits.)

Federal Family and Medical Leave Act

Unpaid leave under this act is also an option. It allows for up to 12 weeks off, unpaid but with benefits, without jeopardizing employment. The leave is not just an adoption benefit since it is available for anyone who works for a company with 50 or more employees. However, it can provide valuable time for a new adoptive family. Some states require employers to offer their workers a minimum amount of parental leave time.

National Adoption Foundation Grant Program

Adoptive parents may submit a financial assistance application to the National Adoption Foundation. For more information on this program, call 203.791.3811.

Dependency Exemption

Adoptive parents may take the same dependency exemption on their income taxes for their adopted children, and children placed with them for adoption but not yet finalized, as they would for their biological children. The exemption reduces their taxable income. The amount of the dependent exemption is adjusted annually to reflect the cost of living. The main point to remember is that families must provide more than half of their children's support to list them as exemptions.

Military Subsidies

The military will reimburse active-duty personnel for most one-time adoption costs up to $2,000 per child, whether adopting a healthy infant, a waiting child, or a child from abroad. Travel costs, foreign or domestic, are not covered. There is a maximum of $5,000 in a given year, even if both parents are in the military. Reimbursement is made only after the adoption is finalized and only if the adoption was done through a state adoption agency or a nonprofit private agency. Fees that can be reimbursed include adoption fees; placement fees, including fees for birth parent counseling; legal fees and court costs; and medical expenses, including hospital expenses of the biological mother and her newborn infant. For more information call the Adoption Exchange Association at 1.303.333.0845.

Adoption Loans

While it is far from ideal to borrow money for an adoption, adoptive families may find a loan necessary to cover the large and immediate expenses. In some cases, you may be able to pay the loan back quickly once you receive a tax credit or are reimbursed by your employer or the military. Possible loan sources include:

• ADOPTION LOANS - some banks offer special rates and incentives on loans for adoption.
• HOME EQUITY LOANS - Interest rates often are reasonable and the interest is tax deductible.
• INSURANCE - You may be able to borrow from the cash value of your life insurance policy.
• LOW INTEREST LOANS - Some banks offer low-interest loans or credit lines for adoptive parents.
• THE NATIONAL ADOPTION FOUNDATION LOAN PROGRAM

Unsecured loans for prospective adoptive parents and adoptive parents. The NAF also offers home-equity loans. Call 800.626.2760 for more information.

Other Sources

For a comprehensive set of resources on financial issues see the National Adoption Center's Adoption Quest site at http://nac.adopt.org/datacenter/faces/

Two other possible sources prospective parents may use for adoption expenses are credit cards and loans on retirement accounts such as 401(k) and profit-sharing plans. Credit cards are an easy source of cash, but typically charge high interest rates. Loans on retirement plans offer somewhat lower interest rates; however, if you lose or change jobs and cannot repay the loan within a short time period, the loan becomes a taxable withdrawal. In addition to income taxes you will have to pay on the withdrawal, you will also have to pay a 10 percent penalty if you're younger than 59-1/2.

For More Information

The National Endowment for Financial Education has prepared a 78-page booklet, "How to Make Adoption an Affordable Option." This free booklet is available from the National Adoption Information Clearinghouse, 330 C St. S.W., Washington, D.C. 20447, 888-251-0075 or naic@calib.com. The booklet can be downloaded from http://www.nefe.org/adoption/default.htm.