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Health Reform Increases Adoption Assistance Exclusion, Credit

By Thompson Publishing Group Inc.  6/14/2010
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Employers that offer adoption assistance and employees who take advantage of it—or that claim the adoption tax credit—need to make adjustments that reflect the provisions of the Patient Protection and Affordable Care Act (PPACA) that increase the employer-provided adoption assistance exclusion and the adoption tax credit.

The PPACA, enacted March 23, 2010, increased the tax credit under Internal Revenue Code section 23 to $13,170 for all adoptions, including adoptions of children with special needs. It also increased the exclusion for employer-provided adoption assistance under section 137 to $13,170 for all adoptions, including adoptions of children with special needs.

In addition, the PPACA allows for the credit and exclusion to be adjusted for inflation beginning Jan. 1, 2011. That adjustment is made by multiplying the statutory limit by the cost of living adjustment for the calendar year in which the tax year begins. If the amount as increased is not a multiple of 10, the amount is rounded to the nearest multiple of 10.

The PPACA provisions that changed the thresholds for adoption assistance went into effect retroactively, on Jan. 1, 2010.

The PPACA also provided that the sunset of the Economic Growth Tax Relief Reconciliation Act (EGTRRA)—which will occur on Dec. 31, 2010—does not apply to the PPACA provisions affecting adoption assistance. Rather, they will remain in effect through Dec. 31, 2011 even if EGTRRA is allowed to expire at the end of this calendar year.

Contributed by Thompson Publishing Group Inc. Republished with permission. For more analysis, see the Employer's Handbook: Complying with IRS Employee Benefit Rules. 

© 2010 Thompson Publishing Group Inc.
All Rights Reserved.

Related Guidance:

IRS Issues Guidance on Expanded Adoption Credit Available for Tax-Year 2010, U.S. Internal Revenue Service, September 2010  

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