Surrogacy resources

Expert advice: Second parent adoption tax credit updates for surrogacy parents

By Melissa Brisman, Esq., Reproductive Possibilities.

tax-glass
There are unfortunately still many laws that discriminate against same sex couples in the United States, especially on the federal level. Indeed it is unconscionable that in many situations gay surrogacy parents, as well as lesbians parenting with the help of IVF or AI, are required to complete a second parent adoption of their own children in order to gain recognition of their legal rights as parents, when in identical situations heterosexuals are not. Advances in marriage equality on the state level did not change the situation and if the second parent adoption is not completed, the couple’s legal status as parents may be drawn into question in another state. As long as the Federal Defense of Marriage Act is in place, legal same-sex spouses of biological parents will still need to undergo the process of second-parent adoption to gain full parental status in all the states. However, in this anomaly there is at least some silver lining: same sex couples can usually claim an adoption tax credit that is not otherwise granted to stepparent adoption within federally recognized marriages.

While some changes are going into affect for the 2012 tax year (see below), in most cases a federal income tax credit is likely to cover many of the costs associated with the second parent adoption. Subject to limitations and exclusions, taxpayers who adopt a child may be entitled to a tax credit or refund in the year an adoption is finalized. Taxpayers can usually only deduct “qualified adoption expenses”. According to the tax legislation, the term "qualified adoption expenses" means reasonable and necessary adoption fees, court costs, attorney's fees, and other expenses, which are:
  1. directly related to the legal adoption of an eligible child by the taxpayer;
  2. not incurred in violation of State or Federal law, or in carrying out any surrogate parenting arrangement;
  3. not for the adoption of a child of an individual's spouse; and
  4. not reimbursed under an employee program or otherwise.

How the benefit works for gay and lesbian couples:


If an individual in a heterosexual marriage adopts the child of their spouse such adoption related expenses are not eligible for the adoption tax credit. However, as stated above married same sex couples are not viewed as married under federal law. As a result, the adopting partner in a married or unmarried same-sex union will 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.

Adoptive Parent: For 2011, your adjusted gross income should be less than $185,210 to earn the full credit. Between $185,210 and $225,210 the credit amount will be reduced and over $225,210 no tax credit is available. For the tax year 2012, the adjusted gross income range is $189,710 – $229,710.

For 2011 tax year the maximum credit is $13,360:


Generally, the credit this year is refundable, which means if you have no federal tax liability you are entitled to receive a refund from the IRS of up to the maximum amount of the credit.

For 2012 tax year the maximum credit is $12,650:


The credit is not refundable. 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.

Note that the law specifies that the adoption credit is not available in a surrogate parenting arrangement - which only means the credit is not available to the child's biological parent. However, it seems that the non-biological parent can utilize the credit in doing a second-parent adoption since that adoption is not in connection with a surrogate parenting arrangement (presumably the surrogates rights have already been terminated). This specific requirement is unclear and anyone utilizing the credit in this situation should confer with tax advisor to be sure they complete the adoption in a way that makes the taxpayer likely to qualify for the credit. Indeed taxpayers should note that each person’s tax return is unique and this information is intended as a summary of the federal adoption tax credit. Readers should not rely on this summary for individual tax or legal advice, as none is being given, and should consult their own individual tax accountant or lawyer to be certain they follow all federal tax requirements.