There are two types of "tax incentives for those who adopt or in some cases, attempt to adopt a child." For qualifying taxpayers, there are tax credits available and where an employer pays for the adoption costs, taxpayers can claim some exclusions.

The new adoption credit tax under IRC Sec. 36C and exclusion for adoptions under IRC Sec. 137 levels have changed, and the new rates and amounts are as follows;

1. For tax years beginning in 2010 and 2011, the maximum credit and exclusion has been increased under the 2010 Health Care Reform Act by $1,000 to $13,170. The modified adjusted gross income phase-out threshold increased to $182,520, and is completely phased out at $222,520 for single, HOH and MFJ filers. Unfortunately, there is no credit available for MFS filers.

2. The $13,170 credit for a special-needs adoption is allowed in the year the adoption is final, regardless of whether the taxpayer has qualified adoption expenses or not.

3. The limit applies separately to the credit and exclusion. In other words, taxpayer can take both if available. The good news is that for tax years beginning in 2010 and 2011, the credit for adoption expenses becomes a refundable personal credit (it has always been nonrefundable in past years). This tax benefit is available to qualified taxpayers for eligible expenses incurred in a qualified adoption (IRC Sec. 36C).

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