Financial Aid Information

“We cannot afford to adopt” is a statement often heard by our volunteers. Because of this statement, made in frustration, many childless families are brokenhearted and children remain in orphanages.

While we cannot change the fact that adopting internationally is expensive, we are concerned that the expenses often make adopting prohibitive for wonderful families desiring to love a child.

However—there is good news! Awareness of adoption, especially international adoption, has risen dramatically within the last decade. And because of raised awareness and the efforts of many wonderful people, legislators, company executives, adoptive parents and others, more and more funding has become available to make an adoption work for you. We want to pass that information along to you.

Federal Adoption Tax Credit

Adoptive parents may be able to claim a tax credit on their federal income tax return for qualified adoption expenses. This credit can be claimed even if the adoption has not been finalized, and even if the adoption process is interrupted and never finalized. This rule applies to domestic adoptions only; international adoptions must be finalized before you can apply the adoption tax credit. The expenses claimed for an adoption that is stopped are applied to the maximum amount that may be claimed on a second adoption.

The credit in 2004 is $10,390. For most adoptions, you may take as a tax credit the amount you actually spent on qualified adoption expenses, up to that limit. For adoption of a domestic waiting child (called a "special needs" child in IRS publications) you can take the full $10,390 as a tax credit, with no documentation needed as to the amount you actually spent. The same $10,390 is available for international adoptions (subject to the amount actually spent) after finalization. The tax credit limit is for expenses associated with each adopted child, rather than an annual limit.

The tax credit is progressively phased out for high-income families. In all cases, the adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $155,860 and is completely phased out for those whose modified adjusted gross income exceeds $195,860.

This tax credit is more valuable than a tax deduction because allowable expenses are subtracted dollar for dollar against your tax liability. For example, if you owe $5,000 in federal taxes and have $3,000 in qualified adoption expenses, your tax bill is reduced to $2,000. If your tax bill is smaller than the credit, the unused portion of the credit may be carried forward for up to five years.

According to IRS Publication 968, qualified expenses include "reasonable and necessary" adoption fees, attorney fees, and some travel costs, including necessary transportation, meals, and lodging. Expenses related to surrogate parents or adopting a spouse's child do not qualify for the credit. The credit also does not apply to expenses reimbursed by the government or private programs or for which an income tax deduction or credit already is allowed. Adoptive parents should carefully review the IRS guidance, preferably with a tax professional, to clarify what expenses qualify for the credit according to IRS guidelines.

What is the Hope for Children Act?
The Hope for Children Act (H.R. 622) is legislation which increases the adoption tax credit to $10,000 for all adoptions and increases the employer adoption assistance exclusion to $10,390. The Hope for Children Act is now public law which took effect on January 1, 2002. The Hope for Children Act was signed into law by President George W. Bush on June 7, 2001.

Do intercountry adoptions qualify for the adoption tax credit?
The Hope for Children Act applies to all adoptions—both domestic and intercountry. Like current law, in order to claim the tax credit for intercountry adoptions, the adoption must be finalized. For IR-3 visas, finalization usually occurs abroad. For IR-4 visas, finalization usually occurs in the United States.

How does the Hope for Children Act affect special needs adoptions?
The $6,000 adoption tax credit for special needs children is permanent law. However, the tax credit can only be utilized for qualified adoption expenses. While most special needs adoptions are from public agencies and do not have these up-front, ’qualified’ costs, the adopting families face other challenges in opening up their home to special needs children. Thus, the Hope for Children Act provides a flat $10,000 credit for special needs adoptions to help families with one-time and ongoing costs such as mental health counseling, physical therapy and medical costs, transportation costs, and home modifications to accommodate wheelchair ramps or large sibling groups. States have their own definitions of special needs children and use determining factors such as the child’s age, ethnic background, siblings, and mental, physical or emotional handicap.

Who should I contact for clarification on my particular tax credit scenario?
Contact the Internal Revenue Service at 1-800-829-1040 with your specific questions.

PLEASE NOTE: This information is provided as a general guideline on the new provisions of the adoption tax credit. It should not be used as a definitive source of information for individual case scenarios. The appropriate agency of the U.S. Government (e.g. the Internal Revenue Service or the U.S. Citizenship & Immigration Services) should be able to answer specific questions on the implementation of the Hope for Children Act.

Employee Benefits

Hundreds of corporations offer adoption expense reimbursements to their qualifying employees. Benefits paid, on average, range between $1,700 and $10,000! Check with your Human Resources Dept. of your company, whoever normally handles your other benefits.

There are adoption benefits available to military families, as well as many other federal employees. Many states offer their employees generous reimbursements—this affects state employees of all kinds—including school teachers.

International Orphans Foundation maintains a database of nearly 450 employers with adoption benefits—financial reimbursement, paid and/or unpaid leave time, and resource and referral services. This list is updated regularly and can be found on our web site.

State Subsidies

Many states offer a tax credit or subsidy in addition to the federal tax credit. There is often an added benefit program for those who adopt children classified as “special needs” (often considered correctable). Sometimes these subsidies can apply to international children. Ask your home study social worker for information of possible state credits.

0% Interest and Low Interest Loans

International Orphans Foundation (IOF) offers 0% interest and Low interest secured loans, with special terms strictly for adoption expenses. The loans are in the form of a secured line of credit.  The interest rates (as low as 0%) are based on the individual financial needs of the applicant.  Loans are intended to be repaid by funds applicants receive from tax reimbursements, employee benefits, State subsidies, grants (by third parties, other than IOF) and the applicants own income. 

The Loan Process

1. The board of Directors of the International Orphans Foundation (IOF) meets each quarter of the calendar year to review all applications submitted during the quarter.
2. The amount and rate of interest of each loan awarded depends on the financial needs of the applicants.
3. The loans are limited to all legal adoptions of non-related children.  In addition the applicant must be working with an IOF approved adoption agency and have either completed or is in the process of completing a Home Study.
4. The IOF will contact loan recipients directly.
5. Loan funds are forwarded directly to your agency, or other adoption service provider, per your instructions. These funds will be held in escrow and disbursed as expenses are incurred. If for any reason the adoption process is terminated, 0% interest and Low interest rates will be increased to market interest rates and any loan balance must be paid within 30 days.

Disclaimer:
Neither IOF, its officers, directors, agents nor employees represent that all applicants will receive a loan from IOF. All loans are awarded with the sole discretion of the Board of Directors.

Loan Balance Grants

Many people will take out a loan to fund the adoption and find that upon receiving tax reimbursements and employee benefits that much of their IOF loan can be paid back quickly.  However, if the funds received from all tax reimbursements, employee benefits, State subsidies and grants (by organizations, other than IOF) are not sufficient to pay the outstanding loan amount, financially qualified applicants may apply for an International Orphans Foundation Loan Balance Grant to help repay the remaining unpaid loan amount. 

To qualify for a Loan Balance Grant a prospective adoptive parent(s) must have received an IOF 0% loan, shall have applied for a minimum of 2 additional grants, from organizations other than IOF, and shall have submit a comprehensive financial assistance application. The Board of Directors of the International Orphans Foundation (IOF) evaluates each application, and awards Loan Balance Grants to qualified applicants based on financial need. 

Disclaimer:
Neither IOF, its officers, directors, agents nor employees represent that all applicants will receive a grant from IOF. All grants are awarded with the sole discretion of the Board of Directors.