With the crazy wild ride of 2020, it’s important to know some of the particulars of the Adoption Tax Credit.
In this blog, I will address:
- QBOAD(Qualifed Birth or Adoption Distribution) that was introduced with the SECURE ACT
- Social Security Administration and Social Security Numbers
- Economic Impact Payment(Stimulus) known as the Recovery Rebate Credit on your tax return and how it affects your tax return if you have a newborn child or adoption in 2020.
The SECURE Act has allowed a taxpayer to take a qualified birth or adoption distribution from any eligible retirement plan up to $5,000 without the 10% penalty if you are under 59 ½. The QBOADS are limited to $5,000 per individual (not family) for each birth or adoption. This is a great benefit for any parent who has given birth or adopted.
The shutdown and limited access to the Social Security Administration for part of 2020 due to Covid-19 has impacted many families trying to get a social security number for their child. For domestic adoptions that are not final, you are able to apply for an ATIN(Adoption Taxpayer Identification Number), however you need to know that you only qualify to use it for the Adoption Tax Credit, Dependent Care Credit and Other Dependent Credit($500 credit versus the $2,000 Child Tax Credit). You will be losing $1,500. You CANNOT use an ATIN for Child Tax Credit and Additional Child Tax Credit, which is a $2,000 credit($1,400 of which is refundable) that you will lose out on and cannot go back and amend your tax return to recover. So, it is better to wait until you can apply for a Social Security Number, even if you have to file an extension!
Due to Covid-19, so far there have been two Economic Impact Payments sent out to millions of people, (called Recovery Rebate Credit on your 2020 federal tax return). The amount you received was based off of prior year tax returns. If you had a new child in the home through foster care, a newborn or adopted child, you would not have received the stimulus payment for them and it will be reconciled on your tax return. It is very important that you keep the Notice 1444 that you received from the Internal Revenue Service or be able to go back and look at the deposit amount you received. If the incorrect amount for the first or second stimulus payment is put on your tax return, your refund will not be correct and may be delayed.