What Form 8839 (2020) Is For
Form 8839 (2020) from the Internal Revenue Service helps adoptive parents claim the federal adoption tax credit and exclude employer-provided adoption benefits from taxable income. This tax form enables taxpayers to recover a portion of their qualified adoption expenses for an eligible child.
The federal adoption tax credit reduces your federal income tax liability, while the exclusion keeps employer-paid adoption assistance out of your taxable income. Both the credit and exclusion apply only to qualifying adoption expenses that are reasonable and necessary for a child who has been legally adopted.
When You’d Use Form 8839 (2020)
You would use Form 8839 when you paid qualified adoption expenses during the 2020 tax year. These include attorney fees, court costs, agency fees, travel expenses, and re-adoption expenses for a foreign child. Adoptive parents can claim the adoption credit whether the adoption effort began in a prior year or during 2020.
The adoption tax credit applies to children under 18 or adults who are unable to care for themselves due to a disability. If you filed late or forgot to claim the credit, you may file an amended federal tax return to claim partial credit or the full adoption tax credit within three years.
Key Rules or Details for 2020
- Maximum Adoption Tax Credit: The maximum credit and income exclusion are each $14,300 per eligible child. This maximum adoption tax credit applies separately to each child, including a child with special needs.
- Income limits: The adoption credit begins to phase out for taxpayers with a modified adjusted gross income exceeding $214,520 and is completely phased out at $254,520.
- Qualified expenses: Qualifying adoption expenses include attorney fees, court costs, travel expenses, and agency fees that are reasonable and necessary for a legal adoption.
- Nonqualified expenses: Adoption assistance, government programs, costs for adopting a spouse’s child, or other expenses paid by the employer, cannot be claimed for a federal tax credit.
- Carryforward rule: If your tax liability is less than the credit amount, any unused portion can be carried forward for up to five years.
- Filing status: Married couples generally must file a joint tax return to claim the credit or income exclusion.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Enter Child Information
List each adopted child’s identifying number, year of birth, and note whether the adoption became final in 2020. Include whether the child is a foreign child or part of a minority or sibling group to ensure proper eligibility for the adoption tax benefits.
Step 2: Calculate the Adoption Credit
Enter your paid qualified adoption expenses for the tax year and determine your credit amount. The form automatically limits your claim based on adjusted gross income and federal income tax liability. Taxpayers with income below the phase-out range may claim the full credit.
Step 3: Apply Employer-Provided Adoption Benefits
Report employer-provided adoption benefits shown on your W-2 and determine how much can be excluded under a qualified adoption assistance program. Do not include the same expenses in both the exclusion and the credit. This ensures compliance with IRS Form 8839 rules for both the exclusion and the credit.
Step 4: Transfer and File
Transfer the adoption credit to Schedule 3 of your federal tax return and adjust income if any adoption benefits were excluded. Keep the completed tax form with your records since unused credits may be carried forward for up to five years.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Claiming both the credit and exclusion for the same expenses: To avoid this, ensure that any employer-provided adoption assistance used for the exclusion is not also counted toward the adoption credit.
- Using the wrong timing for foreign adoptions: To prevent errors, remember that adoption expenses for a foreign child can only be claimed in the year the legal adoption is finalized.
- Ignoring income limits: Avoid miscalculations by verifying your modified adjusted gross income before claiming the federal adoption tax credit.
- Forgetting about special needs adoptions: To ensure full benefit, remember that a U.S. child with special needs automatically qualifies for the maximum credit, even with minimal expenses paid.
- Losing track of unused credits: Keep a copy of Form 8839 and all IRS worksheets so you can accurately carry forward any unused portion for future tax years.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file your federal tax return with Form 8839, the Internal Revenue Service reviews your claim. If approved, the adoption tax credit reduces your federal income tax liability dollar-for-dollar. You may receive a refund if you overpaid, though the credit itself is nonrefundable. The IRS may request proof of expenses paid or adoption subsidy agreements, so keep documentation for all adoption-related costs, including attorney fees and travel receipts.
FAQs
Can I claim the adoption credit if the adoption was not finalized at the time of filing?
For a U.S. adoption, you can claim the adoption tax credit for qualified expenses paid, even if the adoption was not finalized at the time. However, for a foreign child, the credit applies only once the adoption becomes final.
Can both parents claim the adoption credit?
Only one taxpayer can claim the adoption credit per eligible child. If both adoptive parents file separately, only the one with the qualifying adoption expenses and proper documentation can claim the credit.
How does adjusted gross income affect the adoption credit?
Your modified adjusted gross income determines whether you receive the full credit or a reduced amount. If your adjusted gross income exceeds $214,520, your credit begins to phase out, and no credit is allowed after $254,520.
What counts as qualified adoption expenses?
Qualified adoption expenses include attorney fees, court costs, travel expenses, and other reasonable and necessary expenses related directly to a legal adoption. Payments reimbursed by employer-paid benefits or government programs do not qualify.
How do adoption assistance and employer-provided adoption benefits work?
Adoptive parents may exclude employer-provided adoption benefits from taxable income through a qualified adoption assistance program. However, they cannot claim the same expenses under the adoption credit—both the exclusion and the credit offer different tax benefits.
Can I claim the credit for adopting my spouse’s child?
The Internal Revenue Service disallows adoption tax benefits for adopting a spouse’s child. This rule applies even when the adoptive parent pays legal or court fees for the adoption process.
How long can the adoption credit be carried forward?
If your tax liability is lower than your credit, you can carry forward the unused portion for up to five years. This allows you to continue reducing your tax bill in future tax seasons.
