Form 8839, Qualified Adoption Expenses

The dollar limits for both the exclusion of employer-paid adoption expenses and the tax credit apply "per adoption effort." Therefore, if your adoption spans two or more years, you can only claim total credits of $5,000 (or $6,000 for a special needs child) over all the years that you paid expenses. You could also claim an additional $5,000 (or $6,000) in excluded employee benefits, if your employer provides an adoption assistance plan.

If your AGI, as modified above, is $75,000 or less, you qualify for the entire dollar amount of the credit and/or exclusion. If your AGI is $115,000 or more, you won't qualify at all. If your AGI is in between these amounts, your credit and exclusion will both be reduced in proportion to how high your income is in relation to the $40,000 phaseout range. By working through IRS Form 8839, you'll compute the limitation if one applies.

Form 8839, Qualified Adoption Expenses

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For more information, see our discussion of dollar limits on adoption expenses.