From our friends at NACAC...North American Council on Adoptable Children

State and Local Foster Parent Associations,

Many of you know of the North American Council on Adoptable Children (NACAC), but maybe not all of you.  NACAC focuses on children from the foster care system and our executive director is NFPA's Region 5 Advisor, so don't let that Adoptable in our name stop you from reading further.

NACAC has two documents that will be useful to your families, especially as many foster families are also adoptive families.  We have a flier on the Federal Adoption Tax Credit that is pretty comprehensive and is designed for a parent who does their own taxes or for a parent to bring to their tax preparer.  NACAC knows this won't help all families, sadly I talk to some families this won't help at all.  On the other hand, there are many families this tax credit would help if the parent's understood that it could help them, and this is where you come in.  If you could help distribute information about this to your parents via e-mail lists, newsletters or even links on your web sites, that would help us get the word out.

In many states, when a family moves to adopt, they may have a reduction in their per diem and/or lose day care.  Information about this tax credit may (dependent on the families financial situation) provide another resource to meet the child's needs.

Now we know there are two huge barriers to families even exploring the adoption tax credit.  The first is they think they need expenses against which to claim it.  As the following recent e-mail exchange with a worker shows, even they don’t know most of the time:

Here is an example of the confusion that exists out there from a private agency staff member:

I have some questions concerning the adoption tax credit and how it applies to special needs adoption.  It seems as if by the regular standards, most of our families would be excluded because when they adopt all of the things that would be covered are already covered by the county or state such as court costs, lawyer fees, etc.
 
Is there anyone that you could put me in contact with who would be knowledgeable of this benefit for our families?

This was her response after I sent the both documents contained in this e-mail:

I was looking for clarification to this question for about a week and the whole time, I had the subsidy email that I could have contacted. I will try to remember you first the next time I need confirmation with subsidy and tax credit issues.

The other barrier is that families mistakenly think that if they get a refund this can’t help them.  This maybe true, but it could be wrong just as easily.  A refund is when you overpay the what you owe in taxes.  For example, lets say I have $5000 withheld from pay checks to pay federal income tax, but when I do may taxes I only owe $4000.  I would get a refund of $1000, but I still owe the government $4000 which was paid via the withholdings.  The tax credit flier covers this, so by distributing it, you don’t have to explain it.

The second document has the intended audience of adoptive parents who get adoption subsidy.  Yet, some of it will apply to parents that foster only as well.  In 2005 there was a huge change to one of the tests (there are five total) to claim a child as a dependent.  The big change was to the support test which impacted families that received either foster care payments or adoption subsidy payments.

Prior to 2004 the support test worked like this, you had to show you were providing more than half of the support that is supporting the child.  For example, if you received $500/month for a child or $6000/year you had to show that you were spending at least $6,001 of you own money to support the child for the child to meet the support test.  Depending the amount of foster care payment or adoption subsidy and size of your family, this could be really hard to do.  Starting in 2005 they basically got rid of that issue by changing the support test to be, the child cannot had provided more than half of his or her own support.  Foster care and adoption subsidy payments are support provide by the state or agency, not the child.  This makes it easier to claim children as dependents and then to claim the child tax credit.

Now for those of you familiar with NACAC, this whole tax information is really done by me and Joe, and we aren’t tax experts (and neither of us have children in the home).  However, we read things, apply a little common sense and try to explain it to others.  One thing we learned this year is about the Additional Child Tax Credit.  For families that can claim the Child Tax Credit, they may not be able to use it all because they are using the Adoption Tax Credit (or possibly they have a low tax liability) and may be to use Additional Child Tax Credit.  The Additional Child Tax Credit is a refundable credit, so a family could get a refund larger than the amount of money they had withheld.  Both documents make mention of the Additional Child Tax Credit.

As we said earlier, we are asking for your help in getting the information out to parents.  The great thing about this is if a parent has questions, they are going to call NACAC not you, so you don’t have to worry about becoming an expert on this.  You just need to make parents aware that this is out there.
 
We received this e-mail recently from an adoptive parent:

This website confirmed my interpretation of the tax laws.  I have been searching for a publication to cover the state adoption assistance rules and you gave it to me.  Also you confirmed my understanding of the
adoption credit, as well as the child credit.

We also have information on adoption assistance/subsidy on our web site which your families may be interested in.

http://www.nacac.org/adoptionsubsidy.html

NACAC also hosts a list serve for parent support group leaders, it has spotty activity, but is a useful way to distribute information to people or to brain storm about problems you are facing.  You can sign up via the link at the bottom of this page:

http://www.nacac.org/pas_supportgroups.html

If you have any questions about this, adoption subsidy, or NACAC, feel to ask.

Thank you,
Josh Kroll