Can an employee claim both the income exclusion and the adoption tax credit?
Employees may claim both the income exclusion under Section 137 and the tax credit under Section 23 in regard to the same adoption, but not for the same adoption expenses. This is because the tax credit is not available for expenses paid for or reimbursed by an employer or some other third-party source. In general, an employee will be better off claiming the tax credit instead of tax-free reimbursements under an adoption assistance plan. The plan should be used for adoptions with actual expenses in excess of $10,000 and for all adoptions of children with special needs. Because the choice between the income exclusion or the tax credit depends on a number of factors (filing status, number of dependents, impact of incurring expenses in multiple years, etc.), it should be made on a case-by-case basis. Three items from the IRS are helpful: Publication 968, Tax Benefits for Adoption, Form 8839, Qualified Adoption Expenses and the instructions to Form 8839. Alternatively, you may wish to cons
