If your employer provided any adoption assistance benefits, those reimbursements are nontaxable as long as the reimbursement plus the credit is not more than your actual expenses. For purposes of calculating the adoption credit, qualified adoption expenses, don't include expenses reimbursed by an employer under a written qualified adoption assistance program. See IRS Instructions for Adoption Credit.
- Your expenses for the adoption were $30,000 - $5,000 Employer Adoption Assistance Program = $25,000 = Your adoption expenses reported in TurboTax:
- While in your Tax Home,
- Select Search,
- Enter Adoption Credit,
- Select Jump to Adoption Credit,
- Follow the on-screen prompts to complete this section.
The Adoption Credit can only offset your actual tax liability in a given year. Any additional unused credit can be carried forward and offset tax liability for five years. As an example, even though your total expenses were $40k., you will receive a credit of $14,080 to offset your tax liability dollar-for-dollar. If your 2019 income produces a $7,000 tax liability, that will be zeroed out completely and the remaining $6,840 will be available to offset your 2020 tax liability. Any credit not used in the 5-year carryforward period will be lost.
If your employer provided any adoption assistance benefits, those reimbursements are nontaxable as long as the reimbursement plus the credit is not more than your actual expenses. (You can't exclude the reimbursements, then use them to apply for a credit.)
Please see the IRS Adoption Credit Explained for more information.
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But wait ... there is more ... since this credit can carry forward the program will use the non refundable portion of the Child Tax Credit first and then compute how much adoption credit you can use and how much must be carried forward. This extends the life of the credit nicely.