Take Adoption Credit With No Qualified Expenses for “Special Needs” Baby?

Learn more about the adoption tax credit by watching this SlideShare presentation.

Learn more about the adoption tax credit by watching this SlideShare presentation.

I was under the impression that my family couldn’t take the adoption credit because we didn’t have any qualified expenses during our adoption from foster care, but then I read this:

Since 2003, families who adopted a child with special needs from foster care could claim a federal adoption tax credit even if they had no adoption expenses. Children who receive adoption assistance/subsidy benefits are considered children with special needs. Other adoptive families are also eligible for the credit, but must have (and be able to document, if requested by the IRS) qualified adoption expenses.

NACAC | Adoption Tax Credit

When we went through our classes I remember the social worker saying that, in our county, special needs also included children of color. Does that means that we can take the federal adoption credit though we had no qualified expenses? Does special needs in our county qualify as special needs to the government?

Here’s what I found on the internet:


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Adoption Taxpayer Identification Number

adoption taxpayer identification numberSo as I’m trolling the internet so I can start trying to figure out what our taxes might look like this year I come across this at The Nest:

Unfortunately, you can only claim a child as your dependent if you know her Social Security number. You must include this in your tax return. These numbers are not always available to foster parents because of privacy concerns. Therefore, even if your foster kids meet all IRS qualifications as your dependents, you may not be able to claim them.

Um … what? I thought that I understood that #1 foster care payments are not taxed and #2 you can claim the child that’s in foster care as a dependent. I have wondered several times about how all this would work with no social security number, so I was pleased to finish reading the paragraph on The Nest to find out:

If you’re in the process of adopting your foster child, however, this changes. You can apply to the IRS for an Adoption Taxpayer Identification number that you can use on your return in lieu of the child’s Social Security number.

Okay ….

I head on over to the IRS website and find a whole page about this Adoption Taxpayer Identification Number program:

The following are Questions and Answers (Q&A) regarding the ATIN program.

The Q&A provides information to taxpayers who need a taxpayer identification number for a child who has been placed in their home pending final adoption.

I also see that there is a little form W-7A to fill out:

Use this form to apply for an Internal Revenue Service (IRS) adoption taxpayer identification number (ATIN) for a child who is placed in your home for purposes of legal adoption. Do not use this form if you will be able to obtain a social security number (SSN) for the child in time to file your tax return. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, if the child is not a U.S. citizen or resident alien.

I’m going to ask our adoption worker if we can have access to his social security number of is she wants us to request an adoption taxpayer identification number. Glad to see that this might be easier than I thought.





Foster Care Payments Are Not Taxed?

Earnings-statement_43_0It’s tax time, ugh.

Since this is the first time we’ve received payments for foster care I’m not sure if I’m reading this correctly or not:


This notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program, described in this notice, are difficulty of care payments excludable under § 131 of the Internal Revenue Code.


Qualified foster care payments

Section 131(a) excludes qualified foster care payments from the gross income of a foster care provider.

Section 131(b)(1) defines a qualified foster care payment, in part, as any payment under a foster care program of a state or a political subdivision that is either (1) paid to the foster care provider for caring for a qualified foster individual in the foster care provider’s home, or (2) a difficulty of care payment.

Section 131(b)(2) defines a qualified foster individual as any individual who is living in a foster family home in which the individual was placed by an agency of a state or political subdivision or by a qualified foster care placement agency.

Section 131(b)(3) defines a qualified foster care placement agency, in part, as a placement agency that is licensed or certified for the foster care program of a state or political subdivision of a state.

Section 131(c) defines a difficulty of care payment as compensation to a foster care provider for the additional care required because the qualified foster individual has a physical, mental, or emotional handicap. The provider must provide the care in the provider’s foster family home, a state must determine the need for this compensation, and the payor must designate the compensation for this purpose. In the case of any foster home, difficulty of care payments are not excludable to the extent that the payments are for more than 10 qualified foster individuals who have not attained age 19 or 5 qualified foster individuals who have attained age 19. See § 131(c)(2).

Does that mean that the payments are excluded from being taxed?