The Ins and Outs of Financing Adoption

Tax Credits and Subsidies

Tax Credits

Effective January 1, 1997, there is a federal adoption tax credit of $5,000 per child, whether the adoption is domestic or international. Parents adopting a U.S. child with special needs qualify for a $6,000 tax credit. The tax credit for intercountry adoptions and for domestic non-special-needs adoptions will expire in 2002.

At the Web site of the Internal Revenue Service, you will find information about tax rules and changes to those rules. You can also look to the IRS Web site for information about the IRS Adoption Taxpayer Identification Number, and for "Publication 968" on the Adoption Tax Credit and Tax Exclusion.

Additionally, several states have approved state tax credits for families adopting children from the public child welfare system. For more information, please contact your state's Department of Taxation or Revenue or your State Adoption Specialist.

Adoption Subsidy

If you are interested in adopting a child who is currently waiting for adoption in foster care, fees are often kept to a bare minimum or even waived. Many of the children will be eligible for federally funded or state-funded adoption subsidy payments, which help you meet the child's ongoing needs. In addition, some children qualify for SSI (Social Security Insurance) payments or Medicaid coverage because of their medical conditions.

Children with special needs may qualify for an adoption subsidy that is paid to adoptive families to help them pay for their child's need for ongoing therapies or treatment. Adoption subsidy agreements must be negotiated with the placing agency before the child's adoption is finalized.

For more information on adoption subsidy, visit the Web site of the North American Council for Adoptable Children (NACAC) at This Web site allows you to click on your state and find out how adoption subsidy is handled and who the state contact person is. You can also call their NAATRIN adoption subsidy helpline with specific subsidy questions at (800) 470-6665.