Same-Sex Couples and Adoption Tax Credit

08/23/2012

Because of the Defense of Marriage Act ("DOMA"), federal tax laws generally discriminate against same-sex couples (even if the same-sex couple is legally married under state law).  For example, same-sex married couples cannot even file a joint federal tax return. 

In one area, however, federal tax law may actually benefit same-sex couples.  It is often the case that a same-sex spouse or partner of a biological parent will undergo the process of a second-parent adoption in order to gain parental rights.  Going through the adoption process can be costly.  However, there is a federal adoption credit that may be available to same-sex couples (and this credit is not available for married couples where when one spouse is not the biological parent and this stepparent adopts).

So how does this second-parent adoption credit work for same-sex couples?

In general, and subject to some limitations and exclusions, taxpayers who adopt a child may be entitled to a tax credit in the year an adoption is finalized. Taxpayers can usually only claim the credit for “qualified adoption expenses” which are expenses such as adoption fees, court costs, attorney’s fees, and other expenses, which are:

  • Directly related to the legal adoption of an eligible child by the taxpayer;
  • Not incurred in violation of State or Federal law, or in carrying out any surrogate parenting arrangement;
  • Not for the adoption of a child of an individual’s spouse; and
  • Not reimbursed under an employee program or otherwise.

If an individual in a heterosexual marriage adopts the child of his or her spouse such adoption related expenses are not eligible for the adoption tax credit under the above rule (because of the bold bulletpoint).  However, because of DOMA, married same sex couples are not viewed as married under federal law (even if the marriage is recognized under state law).  As a result, the adopting (non-biological) partner in a married or unmarried same-sex union should be entitled to the adoption tax credit benefit even when he or she adopts his or her partner’s child. The adoption tax credit must be taken in the tax year the adoption is finalized.

For 2012 tax year the maximum credit is $12,650: The credit is not refundable. This means that if you paid no federal taxes or owe no federal taxes, you cannot receive a refund.  However you can carry the balance of your credit forward for an additional five tax years.

For more information, see the IRS website by clicking on the following link:  http://www.irs.gov/newsroom/article/0,,id=258326,00.html