How to pay for adoption

Adopting a child can be expensive. Fortunately, there are many resources that can help. Here’s an overview of the costs of adoption and the different forms of financial aid that may be available to you.

Key learning points

  • Adopting a child can cost between $0 and $50,000 or more, depending on the type of adoption.
  • Both the US government and the states have programs that can help cover the costs.
  • Grants and loans are also available from some private foundations and organizations.
  • Borrowing from a retirement plan or taking out a home equity loan can be other sources of funds.

What does adoption cost?

Adoption costs in the US vary widely† Adopting a child currently in government-sponsored foster care may cost very little, while private adoption can range from $20,000 to $45,000, according to 2016 estimates. walk from $20,000
up to $50,000.

$272,049

The estimated average cost of raising a child born in 2022 to age 18, as calculated by Investopedia based on 2015 U.S. Department of Agriculture data with an annual inflation rate of 2.2%

What resources are available to help pay for adoption?

Money to help cover the costs of adoption is available from both the government and the private sector. Here are the main ones:

Federal and State Adoption Assistance for Children in Foster Care

Federal and state governments offer adoption grants for children adopted from foster families. To be eligible, the child must meet certain criteria, which may vary from state to state. “The term ‘eligible’ most often refers to school-aged children; part of a group of siblings; children of color; or people with specific physical, emotional or developmental needs,” said the Children’s Bureau, which is part of the United States Department of Health and Human Services (HHS)† Assistance may include “monthly cash payments, medical assistance, social services, and one-time adoption fees.” More information about these benefits and how to apply for them is available as part of HHS’s Child Welfare Information Gateway.

Federal Tax Credits for Adoption

The federal government provides a tax credit to adoptive parents. To be eligible, the adoptee must be “under the age of 18 or…not physically or mentally able to care for themselves,” according to the Internal Revenue Service (IRS)† Adoption of the child of the taxpayer’s spouse is not eligible.

Eligible expenses include:

  • Reasonable and necessary adoption costs
  • Court fees and attorney fees
  • Travel expenses
  • Other directly related costs

Income limits apply to the adoption discount. In 2022, it will start to wind down as the taxpayer Adjusted Adjusted Gross Income (MAGI) is $223,410 or above, and it disappears completely at $263,410. The maximum tax credit for 2022 is $14,890.

In addition, adoptive parents, like all other parents, are eligible for the child tax credit of up to $2,000 per year, subject to income limits. (For 2021, the credit was temporarily increased to a whopping $3,600 per year, but it will return to its previous $2,000 cap for 2022 unless Congress reinstates a higher amount.)

Some states also offer adoption-related tax credits on their state income taxes.

A tax credit is better than a tax deduction because it reduces the tax you owe dollar for dollar. A tax deduction simply reduces the amount of income you pay tax on.

Grants and loans for adoption

In addition to government support, there are private foundations and other organizations that provide grants and loans to adoptive parents. HHS lists some of them as part of its Child Welfare Information Gateway.

Employer Sponsored Adoption Benefits

Your employer can be another resource. A growing percentage of businesses have adoption assistance programs. In addition to financial support, these programs can provide other benefits, such as parental leave.

The employer’s financial support can take the form of a lump sum payment or an expense allowance up to a certain maximum. According to the Dave Thomas Foundation for Adoption, those benefits can range from $500 to $35,000, with $9,000 being the average maximum.

As an added bonus, employer-provided adoption assistance is excluded from the employee’s taxable income up to the same limit as the federal tax credit ($14,890 for 2022). The exclusion also disappears over the same income range (from $223,410 to $263,410 for 2022).

For example, if an employee has $30,000 in adoption fees and meets the income requirements, they can get a tax credit of $14,890 and also exclude up to an additional $14,890 in employer assistance from their taxes.

Tapping your retirement accounts

If you participate in a 401(k) plan at work or a individual retirement account (IRA) in themselves they can also be a source of money. Normally, if you are under 59 ½, any withdrawals you make are subject to a 10% early withdrawal fine on top of the income tax owed by you. Since the adoption of the SECURE Act in 2019however, adoption is one of the exceptions to the penalty.

Under current tax laws, individuals can take a penalty-free benefit of up to $5,000 to pay adoption costs “during the one-year period commencing on the date the person’s child is born or the legal adoption by the individual of an eligible person is coming adoptee is final.”

The law also specifies that the adoptee must be an “eligible adoptee,” which the IRS defines as “any person (other than a child of the taxpayer’s spouse) who has not attained the age of 18 or has been physically or mentally incapable of supporting himself.”

Under these rules, a married couple could receive benefits totaling $10,000.

Home Equity Loans and Home Equity Lines of Credit (HELOCs)

As long as you have enough equity and meet the lender’s other financial requirements, you can a home equity loan or home equity line of credit (HELOC) for any purpose you wish, including adoption. A personal loan from a bank or other lender could be another option, but these tend to have significantly higher interest rates.

What does it cost to adopt a child in a foster family?

The North American Council on Adoptable Children estimates the cost to be between $0 and $2,500.

Are adoptive parents entitled to paid parental leave?

Not at the national level. However, under the federal Family and Sick Leave Act from 1993, adoptive parents may be eligible for 12 weeks of unpaid parental or family leave in the first year of placement. To qualify, they must have worked for that employer for a minimum of 12 months and the employer must have a minimum of 50 employees.

While the US does not have a national policy providing for paid leave for adoptive or other parents, such leave is available or will take effect in 11 states plus the District of Columbia. Of these, seven offer a minimum of six weeks of paid leave. Some employers also have their own voluntary paid leave programs.

Can You Put an Adopted Child on Your Employer’s Health Insurance?

Yes. According to the United States Department of Labor Employee Benefits Security Administration“As long as you enroll your child within 30 days of adoption or placement for adoption, coverage must be in effect from your child’s adoption or placement date and your child cannot be subject to a pre-existing conditional exclusion.”

If you receive your health insurance through the The health insurance market of the Affordable Care ActUpon adoption, you qualify for a special enrollment period during which you can add the child to your policy.

It comes down to

There are many ways to pay for adoption, from government programs to private and employer-based programs. If necessary, you can also borrow money, including from your pension schemes. And once you are older, you are also eligible for childcare allowance.

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