Tax credits assist few foster adoptions

The federal $11,000 adoption tax credit is least likely to be used for foster children although the credit originally was pitched as a way to reduce the number of “waiting” children, says a report released today.

More than 80 percent of the $355 million in adoption tax credits in 2005 went for foreign adoptions and domestic adoptions conducted outside the foster care system, said Rob Geen, a researcher with Child Trends, a nonpartisan research organization.

“The original intent of the adoption tax credit was to promote adoption and, specifically, the adoption of U.S. foster children,” said Mr. Geen. However, tax and adoption data “raise serious doubts” about whether the tax credit is the best way to promote foster care adoption.

About 115,000 foster children are waiting for a permanent home, Mr. Geen said. About 50,000 foster children are adopted each year, but another 24,000 children “age out” of the system without a permanent family.

At minimum, child welfare agencies should be required to educate prospective parents about the adoption tax credit, Mr. Geen said. Another change would be to make the credit refundable, which would allow parents who don’t pay high taxes to be reimbursed for adoption expenses, he said.

Another suggestion would be to use the tax credit funds for post-adoption support services. Most of the parents taking the tax credit are well-to-do and are adopting young children, Mr. Geen said. These adoptions are likely to take place anyway, making incentives unnecessary.

Lee Allen of the National Council for Adoption said the tax credit makes adoption more affordable to thousands of families each year. “It’s hard to argue that tax credits aren’t working when we learn that the amount of tax credit dollars received by families adopting from foster care increased by 600 percent between 1999 and 2004,” he said.

“It’s also clear that even more children in foster care will benefit if Congress were to repeal the credit’s sunset provision and make the credit a refundable benefit,” Mr. Allen added, referring to the tax credit’s expiration date of 2010.

The Child Trends report said that 56,000 parents filed tax returns in 2005 claiming $355 million in allowable adoption tax credits.

In 2004, the most recent year for data on tax credits by type of adoption, 18 percent of adoptions were from foster care while 48 percent were private domestic adoptions and 34 percent were foreign adoptions.

The tax credit often was used for young children — 71 percent of the dollars were spent on adoptions involving children age 5 or younger— by well-to-do parents: Two-thirds of parents filing for the tax credit had incomes above $74,999.

Foster-care adoption costs range from zero to $2,500, while other kinds of adoptions range from $5,000 to $40,000, according to the Child Welfare Information Gateway, the federal government’s information clearinghouse on adoption, foster care, child abuse and child welfare.