By Melissa Brisman, Esq.
Editor’s Note: We’re well past tax season, but for those with a baby on the way, it can’t hurt to brush up on what to expect next April.
Many laws still discriminate against same sex couples in the United States, especially on the federal level. It is unconscionable that in many situations gay and lesbian parents are required to complete a second parent adoption of their own children in order to gain recognition of their legal rights as parents, when in identical situations heterosexuals are not subject to this requirement. Advances in marriage equality on the state level do not change the federal situation and if the second parent adoption is not completed, the couple’s legal status as parents may be drawn into question in another state. As long as the Federal Defense of Marriage Act is in place, legal same-sex spouses of biological parents will still need to undergo the process of a second-parent adoption to gain full parental status in all the states. However, in this anomaly there is at least some silver lining: same sex couples can usually claim an adoption tax credit that is not otherwise granted when a stepparent adoption is completed within federally recognized marriages. (Please note: Windsor v. United States, a case before the US Supreme Court scheduled to be decided the summer of 2013, may strike down DOMA and affect the use of the federal adoption credit for same sex married couples.)
In most cases a federal income tax credit is likely to cover many of the costs associated with the second parent adoption. Subject to limitations and exclusions, taxpayers who adopt a child may be entitled to a tax credit in the year an adoption is finalized. Taxpayers can usually only deduct “qualified adoption expenses”. According to the tax legislation, the term “qualified adoption expenses” means reasonable and necessary adoption fees, court costs, attorney’s fees, and other expenses, which are:
1. directly related to the legal adoption of an eligible child by the taxpayer;
2. not incurred in violation of State or Federal law, or in carrying out any surrogate parenting arrangement;
3. not for the adoption of a child of an individual’s spouse; and
4. not reimbursed under an employee program or otherwise.
How the benefit works for gay and lesbian couples:
If an individual in a heterosexual marriage adopts the child of their spouse such adoption related expenses are not eligible for the adoption tax credit. However, as stated above married same sex couples are not viewed as married under federal law. As a result, the adopting (non-biological) partner in a married or unmarried same-sex union will be entitled to the adoption tax credit benefit even when he or she adopts his or her partner’s child. The adoption tax credit must be taken in the tax year the adoption is finalized.
Adoptive Parent: For 2011, your adjusted gross income should be less than $185,210 to earn the full credit. Between $185,210 and $225,210 the credit amount will be reduced and over $225,210 no tax credit is available. For the tax year 2012, the adjusted gross income range is $189,710 – $229,710. For the tax year 2013, the adjusted gross income range is $194,580 – $234,580.
For 2011 tax year the maximum credit is $13,360: Generally, the credit this year is refundable, which means if you have no federal tax liability you are entitled to receive a refund from the IRS up to the maximum amount of the credit.
For 2012 tax year the maximum credit is $12,650: The credit is not refundable. If you paid no federal taxes or owe no federal taxes, you cannot receive a refund; however you can carry the balance of your credit forward for an additional five tax years.
For 2013 tax year the maximum credit is $12,970: The credit is no longer refundable per a change in the 2013 tax law and the tax credit has been made a permanent part of the federal tax law.
Note that the law specifies that the adoption credit is not available in a surrogate parenting arrangement – which means the credit is not available to the child’s biological parent. However, it is likely that the non-biological parent can utilize the credit in doing a second-parent adoption since that adoption is not in connection with a surrogate parenting arrangement (presumably the surrogate’s rights have already been terminated). Taxpayers utilizing the credit in this situation should confer with their tax advisor. Indeed taxpayers should note that each person’s tax return is unique and this information is intended as a summary of the federal adoption tax credit. Readers should not rely on this summary for individual tax or legal advice, as none is being given, and should consult their own individual tax accountant or lawyer to be certain they follow all federal tax requirements.
Melissa B. Brisman is an attorney who practices exclusively in the field of reproductive law and is considered by her peers to be a leader in her profession. Ms. Brisman’s experience and qualifications are unparalleled. She employs an experienced and qualified staff of legal and administrative professionals and is licensed to practice law in Massachusetts, New Jersey, New York and Pennsylvania. Ms. Brisman has a practice, Melissa B. Brisman, Esq., LLC, located in Montvale, New Jersey, offering a full range of legal services in connection with gestational carrier arrangements, ovum, sperm, and embryo donation, and adoption. In addition, Ms. Brisman is sole owner of Reproductive Possibilities, LLC, an agency that facilitates gestational carrier arrangements, and Surrogate Fund Management, LLC, a company that manages escrow in connection with reproductive arrangements.