Navigating Public Resources and State-Level Tax Credits to Supplement Adoption Costs

Each state in the U.S. has a specific program that offers financial assistance to parents who adopt children from the state's foster care system. The type and amount of assistance vary depending on the state and the child's individual needs. Some states provide a one-time payment with certain conditions and limitations.

The Child Welfare Information Gateway, a service of the U.S. Department of Health & Human Services, provides a database of state-by-state information on adoption and guardianship assistance. You can find state-specific advice under "Find Resources" by clicking on "State, Territory, and Tribal Resources."

Taxability of State-Provided Assistance

Since 1974, the IRS has ruled that adoptive parents do not need to include adoption assistance benefits in their taxable income (see box below for specific IRS language).

IRS Publication 17: Your Federal Income Tax

Publication 17 has made two references related to the taxability of adoption assistance:

Chapter 12: Other Income—Welfare and Other Public Assistance states “do not include in income the benefit payments from a public welfare fund” (p. 84). In 1974, the IRS ruled that adoption assistance benefits were public welfare payments and thus exempt from taxation under this clause.

In a previous version of Publication 17, the IRS specifically stated “do not include in your income payments from a state agency to help you care for your adopted child” (p. 67 of the 1986 Publication 17).

State Tax Benefits for Adopting Parents

The Adoption Tax Credit is only able to be used on your federal tax return. However, as of 2017, there are 17 states that offer state-level adoption benefits in the form of a tax credit or deduction to help with an adoption.