Adopting a child is a joyful but often expensive journey. Fortunately, the IRS offers financial relief through Form 8839, which helps adoptive parents claim a tax credit and exclude employer-provided adoption benefits from their income. This guide breaks down everything you need to know about the 2020 version of this form in plain English.

What Form 8839 Is For

Form 8839 serves two important purposes for adoptive parents. First, it allows you to claim the Adoption Tax Credit—a dollar-for-dollar reduction in the taxes you owe. Second, it helps you calculate and exclude employer-provided adoption benefits from your taxable income. Think of it as a two-part tool: one part reduces your tax bill directly, and the other part keeps adoption assistance from your employer out of your taxable income altogether.

For 2020, both the maximum credit and the maximum exclusion are $14,300 per eligible child. This means if your employer didn't provide any adoption benefits and you paid qualifying expenses, you could potentially reduce your tax bill by up to $14,300. If your employer did help with adoption costs, you might be able to exclude up to $14,300 from your income and claim a credit on any unreimbursed expenses you paid—though you can't double-dip by claiming both the credit and the exclusion for the same dollar you spent.

The form applies to adoptions of children under 18 or disabled individuals of any age who cannot care for themselves. You'll attach Form 8839 to your Form 1040, 1040-SR, or 1040-NR when you file your taxes.

When You’d Use Form 8839

You would typically file Form 8839 with your tax return for the year when your qualified adoption expenses become eligible to claim. The timing rules differ depending on whether you're adopting a U.S. child or a foreign child.

U.S. Adoptions

For U.S. adoptions (children who were U.S. citizens or residents when the adoption process began), you can claim the credit even if the adoption never becomes final or is unsuccessful. If you paid expenses in 2019 for an adoption that wasn't final by year-end, you'd claim those expenses on your 2020 return. If you paid expenses in 2020 and the adoption became final in 2020, you claim them that same year.

Foreign Adoptions

For foreign adoptions, you must wait until the adoption becomes final before claiming any credit. All expenses paid in prior years and the finalization year are claimed together in the year the adoption becomes final.

Late or Amended Filings

If you forgot to claim your adoption credit or exclusion when you originally filed your 2020 taxes, you're not out of luck. You can file an amended return using Form 1040-X to claim the credit retroactively. The IRS generally allows you to amend returns for up to three years after you filed your original return (or within two years of paying the tax, whichever is later). Since 2020 returns were typically due in April 2021, you would have until April 2024 to amend and claim missed adoption benefits. If you're in this situation, you'll need to complete Form 8839 as it should have been filed with your 2020 return and attach it to your Form 1040-X explaining the correction.

Key Rules or Details for 2020

Understanding the rules helps you maximize your benefits while staying compliant. Here are the critical points:

Dollar Limits

The maximum credit is $14,300 per child, and the maximum exclusion for employer benefits is also $14,300 per child. If you're adopting multiple children, each child gets their own $14,300 limit.

Income Phase-Out

Benefits begin to phase out if your MAGI exceeds $214,520 and completely disappear at $254,520 or more. This means higher-income families may receive a reduced benefit or none at all.

Qualified vs. Non-Qualified Expenses

Qualified expenses include adoption fees, court costs, attorney fees, travel expenses (including meals and lodging while away from home), and re-adoption expenses for foreign children.
What doesn't qualify: expenses your employer reimbursed, expenses paid by government programs, expenses that violate state or federal law, surrogate parenting arrangements, and adopting your spouse's child.

Special Needs Adoption

If you adopt a U.S. child with special needs (a state has determined the child cannot be returned to their parents and needs assistance to be adopted), you can claim the full $14,300 credit even if you didn't pay that much in expenses—or any expenses at all.

Carryforward Provision

If your tax liability is too small to use the entire credit in 2020, you don't lose it. The unused portion can be carried forward for up to five years.

Filing Status Requirement

Generally, you must file as single, head of household, qualifying widow(er), or married filing jointly. Married couples usually must file jointly to claim these benefits, with limited exceptions if you're legally separated or lived apart from your spouse for the last six months of the year.

Step-by-Step (High Level)

Filing Form 8839 follows a logical progression through its three parts:

Part I – Child Information

Start by providing details about each eligible child. You'll need the child's name, year of birth, identifying number (SSN, ATIN, or ITIN), and you'll indicate whether the child has special needs, is a foreign child, and whether the adoption became final in 2020 or earlier. If you're adopting multiple children, you can list up to three on one form.

Part II – Adoption Credit Calculation

This is where you calculate your actual credit. Enter $14,300 as the maximum per child, then subtract any credit you claimed in prior years for the same child. Next, enter your qualified adoption expenses (being careful about the timing rules for U.S. versus foreign adoptions). The form will walk you through adjusting for your income if it's above the phase-out threshold. If you have a credit carryforward from 2019, you'll add that in. Finally, you'll compare your calculated credit against your tax liability to determine how much you can actually use this year.

Part III – Employer-Provided Benefits Exclusion

If your employer helped with adoption costs, complete this section. Enter $14,300 as the maximum exclusion, then enter the benefits you received (shown in box 12 of your W-2 with code T). Similar to Part II, you'll adjust for income phase-outs. The result tells you how much of those employer benefits you can exclude from your income and whether any portion is taxable.

Final Transfers

After completing all three parts, you'll transfer the credit amount to Schedule 3 (Form 1040), line 6, and make any necessary adjustments to your wage income on Form 1040 based on excluded or taxable adoption benefits. Keep the completed Form 8839 with your tax records—you'll need it if you have unused credit to carry forward to future years.

Common Mistakes and How to Avoid Them

Mistake #1: Double-Counting Expenses

Claiming both the credit and the exclusion for the same dollar. If your employer reimbursed $8,000 for attorney fees, you can exclude that $8,000 in Part III, but you cannot also claim those same $8,000 in expenses in Part II.

Mistake #2: Wrong Timing for Foreign Adoptions

For foreign children, you cannot claim any credit until the adoption is finalized. Expenses from prior years are claimed in the year of finalization.

Mistake #3: Missing the Special Needs Benefit

Adopting a U.S. child with special needs entitles you to the full $14,300 credit regardless of actual expenses paid (with proper state documentation).

Mistake #4: Forgetting About Attempted Adoptions

Expenses for an unsuccessful attempt and a successful adoption of a different child can be combined (up to the per-child limit) as attempts to adopt one eligible child.

Mistake #5: Ignoring Income Limits

If your income is in the phase-out range ($214,520–$254,520), your benefits will be reduced proportionally. Don’t assume you automatically get the full credit.

Mistake #6: Not Tracking Carryforwards

If you don't use your entire credit in 2020, keep detailed records. You'll need your 2020 Form 8839 and worksheets to properly claim the carryforward for up to five years.

What Happens After You File

Once you submit your tax return with Form 8839 attached, the IRS will process your adoption credit and exclusion claims as part of your overall return. In most cases, if your return is straightforward and your documentation is in order, the IRS will accept your claim without further inquiry.

Processing & Review

Adoption credits are subject to mandatory IRS review, which can delay your refund. This review process can take several months—longer than typical refund processing times. Don't be alarmed if your refund is delayed; this is standard procedure for adoption credit claims.

Documentation Requests

The IRS may request additional documentation: proof of adoption finalization (court decree), receipts for qualified expenses, evidence of employer-provided benefits, and—for special needs adoptions—state documentation showing the special needs determination. Keep records for at least three years (or longer if you have carryforwards).

Impact on Tax Liability & Refunds

If the IRS approves your claim, your credit will reduce your tax liability dollar-for-dollar. If you've overpaid via withholding or estimated taxes, you'll receive a refund. If your credit exceeds your tax liability, the unused portion carries forward automatically to the next year (you must remember to claim it).

Employer Benefits Treatment

Any excluded employer benefits won't appear as taxable income, effectively increasing your refund or reducing your tax owed. If the IRS determines some benefits should have been taxable, they'll adjust your return and send a notice explaining the change.

FAQs

Q: Can I claim the adoption credit if the adoption falls through?

Yes, but only for U.S. adoptions. If you paid qualified expenses attempting to adopt a U.S. child and the adoption was unsuccessful or never finalized, you can still claim the credit. For foreign adoptions, the adoption must become final before you can claim any credit.

Q: What if my spouse and I are divorcing—who gets to claim the credit?

If you paid qualified expenses jointly while married and filing jointly, both of you shared the benefit. If you divorce and one parent completes the adoption, only that parent can claim future expenses. If you're separated but not divorced and trying to claim the credit separately, you must meet strict requirements: living apart for the last six months of the year, having the child in your home for more than half the year, and providing over half the cost of maintaining your home.

Q: Do I need an attorney's itemized bill to claim legal fees?

While the IRS doesn't specify the exact format, you should maintain detailed records showing the date of service, description of services, amount paid, and that the services were directly related to the adoption. An itemized bill is ideal. Generic receipts saying "legal services" may not be sufficient if questioned.

Q: Can I use the credit if I'm adopting my stepchild?

No. The tax code specifically excludes the adoption of a spouse's child from qualifying for the adoption credit or exclusion.

Q: What happens to my unused credit if I move to a different state or country?

Your unused adoption credit carries forward for five years regardless of where you live, as long as you continue to file U.S. tax returns. If you move abroad and file as a nonresident, the carryforward rules still apply when you return to resident status. You must remember to claim it.

Q: If my employer provides $14,300 in benefits and I spent $20,000, can I claim the extra $5,700?

Yes. You can exclude $14,300 in employer benefits from income and claim up to $14,300 in credit for unreimbursed expenses. However, your credit would be limited to $14,300, not the full $5,700 over the reimbursement. The total benefit (exclusion plus credit) cannot exceed $28,600 per child.

Q: How do I know if my adopted child qualifies as "special needs"?

The state must make this determination, typically via an adoption assistance agreement or similar documentation, before finalization. A disability alone isn’t enough; you need official state documentation confirming special needs status.

Additional Resources

• Official IRS Form 8839 (2020)
• 2020 Form 8839 Instructions
• IRS Adoption Credit Overview

Remember, tax situations vary widely. While this guide provides a solid foundation for understanding Form 8839, consider consulting a tax professional if your adoption involves complex circumstances, significant employer benefits, international elements, or special needs considerations. The investment in professional advice often pays for itself through maximized benefits and peace of mind.