The Adoption Tax Credit and Special Needs Children

Recently I wrote about the expansion of the adoption tax credit for 2010. The credit was raised to $13,170.00 for 2010 and is generally available to cover qualified expenses incurred as a result of the legal adoption of a child under the age of eighteen. 

When adopting a special needs child, however, the full amount of the credit can be claimed even if there were no actual expenses. For residents of Pennsylvania, in order to claim the credit the Commonwealth must have made a determination of special needs for the child. Generally speaking, the state should make such a determination if the child:

  • Is over the age of five and under the age of eighteen;
  • Is a member of a minority group;
  • Has a natural brother or sister in the same adoptive home;
  • Has a physical, mental or emotional condition or handicap; or
  • Has a genetic condition which indicates a higher risk of developing a disease or handicap.

Such circumstances tend to reduce the likelihood that a child will be adopted without some form of assistance. Hence, the adoption credit serves to subsidize the adoption of a special needs child.

A taxpayer claiming the adoption credit must file IRS Form 8839. In addition, the taxpayer must include a copy of the determination of special needs. For more information on adoption and related issues, please refer to the Pennsylvania Statewide Adoption and Permanency Network.

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Comments (5) Read through and enter the discussion with the form at the end
Nick DeSoto - December 27, 2010 4:14 PM

I will claim the adoption credit for a special needs child this year. Will I still be able to file electronically or so i have to mail in my return

thanks

Matthew Grosh - December 29, 2010 1:26 PM

Hello Nicholas and thank you for your query. I do not think e-filing will be an option for you because you will be required to attach the determination of special needs to the return. I hope that helps.

JMS - February 7, 2011 3:50 PM

What documentation is acceptable to show the "state's determination of special needs"? We have a county determination of our son's special needs. We don't have anything from DPW, and he was never posted on the adoptpakids site... Thanks in advance!

Matthew Grosh - February 8, 2011 1:43 PM

Section 36C of the Internal Revenue Code, which governs the adoption credit, explicitly requires the determination of special needs to come from the State. If the determination you have is from a County Assistance Office in your county, that will probably work because those office are sub-offices of the PA Department of Public Welfare. However, if the determination is purely from the County, it is probably not sufficient. In your case, to be safe I would have a tax professional such as an attorney or accountant review your determination to see if it is sufficient.

Matthew Grosh - February 15, 2011 9:42 AM

As a supplement to my February 8, 2011 comment, I should also note that adoptions from a county’s Children and Youth Agency should all qualify as special needs children. This is because a special needs declaration from the state, usually through the Statewide Adoption and Permanency Network (SWAN), is a prerequisite for a child to be placed under a Children and Youth Agency’s care. SWAN is a centralized information and facilitation service, funded and overseen by the Pennsylvania Department of Public Welfare, that collects and maintains data from various public and private sources, such as county children and youth agencies, juvenile court judges, foster and adoptive parents, private adoption agencies, and the Pennsylvania Adoption Exchange.

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