Citations Affected: IC 6-3.1-24 ; IC 6-3.1-25.
Synopsis: Adoption expense tax credits. Provides a credit against
adjusted gross income tax for adoption related expenses incurred by a
taxpayer who adopts a child. Provides that the credit does not apply to
stepparent adoptions. Allows a tax credit of not more than $5,000 for
a taxpayer whose household income is $75,000 or less and gradually
reduces the credit for taxpayers with household incomes greater than
$75,000 but less than $115,000. For each special needs child adopted
by a taxpayer in a taxable year, provides a tax credit of not more than
$5,000 against adjusted gross income for expenses related to the
adoption of the special needs child without regard to the income levels
applied to the adoption of a nonspecial needs child.
Effective: January 1, 2003.
January 14, 2002, read first time and referred to Committee on Finance.
A BILL FOR AN ACT to amend the Indiana Code concerning
IS ADDED TO THE INDIANA CODE
AS A NEW CHAPTER TO READ AS FOLLOWS [EFFECTIVE
JANUARY 1, 2003]:
Chapter 24. Child Adoption Tax Credit
Sec. 1. As used in this chapter, "household income" means the total adjusted gross income of an individual, or of an individual and the individual's spouse if they reside together, for the taxable year for which the credit provided by this chapter is claimed.
Sec. 2. (a) As used in this chapter, "qualified adoption expenses" means any of the following costs incurred by a taxpayer as the result of the finalized adoption of a child:
(1) Court costs.
(2) The putative father registry fee and adoption history fee.
(3) Actual and reasonable travel expenses of the adoptive parent.
(4) Actual and reasonable expenses for telephone service used in connection with the adoption by the adoptive parent.
(5) Any lawful adoption expenses that are:
(A) expressly enumerated; or
(B) approved by the court supervising the adoption;
under IC 35-46-1-9 (b).
(b) The term does not include the following:
(1) Expenses incurred for the adoption of a child by the child's stepparent.
(2) Expenses incurred in carrying out a surrogate parenting arrangement.
Sec. 3. As used in this chapter, "taxpayer" means an individual who has any adjusted gross income tax liability.
Sec. 4. (a) Except as provided in section 5 of this chapter, a taxpayer who adopts a child is entitled to a credit against the adjusted gross income tax imposed by IC 6-3 for the taxable year during which the taxpayer adopts the child. Except as provided in subsection (b) and IC 6-3.1-25-6 , the credit is equal to the lesser of:
(1) the taxpayer's qualified adoption expenses for all children adopted during the taxable year; or
(2) five thousand dollars ($5,000).
(b) If the taxpayer's household income exceeds seventy-five thousand dollars ($75,000), the amount allowable as a credit under this chapter for a taxable year is the lesser of the taxpayer's qualified adoption expenses or the amount determined in STEP FOUR of the following formula:
STEP ONE: Determine the amount by which the taxpayer's household income exceeds seventy-five thousand dollars ($75,000).
STEP TWO: Divide the amount determined in STEP ONE by forty thousand (40,000).
STEP THREE: Multiply the amount determined in STEP TWO by five thousand (5,000).
STEP FOUR: Subtract the amount determined in STEP THREE from five thousand dollars ($5,000).
Sec. 5. A tax credit is not allowed under this chapter for an adoption related expense:
(1) to the extent that the expense was funded or reimbursed by a federal, state, or local program; or
(2) if the taxpayer claims a tax credit or deduction for the expense under any other federal or state law.
Sec. 6. If both spouses reside in the same household, only one (1) credit may be claimed by the spouses under this chapter for the taxable year. However, in the case of a husband and wife who:
(1) incur adoption related expenses; and
(2) file separate tax returns;
the husband and wife may take the credit in equal shares or one (1) spouse may take the entire credit.
Sec. 7. The amount of the credit provided by this chapter that a taxpayer uses during a particular taxable year may not exceed the sum of the taxes imposed by IC 6-3 for the taxable year after the application of all credits that under IC 6-3.1-1-2 are to be applied before the credit provided by this chapter. If the credit provided by this chapter exceeds that sum for the taxable year for which the credit is first claimed, then the taxpayer may elect to have the excess carried over to succeeding taxable years and used as a credit against the tax otherwise due and payable by the taxpayer under IC 6-3 during those taxable years.
Sec. 8. (a) If the taxpayer elects to have the unused credit carried over to succeeding taxable years under this chapter, then each time the credit is carried over to a succeeding taxable year, the unused credit is to be reduced by the amount that was used as a credit during the immediately preceding taxable year. The credit provided by this chapter may be carried forward and applied to succeeding taxable years for fifteen (15) taxable years following the unused credit year.
(b) A taxpayer is not entitled to a carryback or a refund of an unused credit.
Sec. 9. A credit earned by a taxpayer in a particular taxable year shall be applied against the taxpayer's tax liability for that taxable year before any credit carryover is applied against that liability under section 8 of this chapter.
SECTION 2. IC 6-3.1-25 IS ADDED TO THE INDIANA CODE AS A NEW CHAPTER TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2003]:
Chapter 25. Special Needs Child Adoption Tax Credit
Sec. 1. As used in this chapter, "disability" means a medically verified mental, physical, or emotional impairment that substantially limits at least one (1) major life activity, including impairments that are congenital or acquired by accident, injury, or disease.
Sec. 2. As used in this chapter, "qualified adoption expenses" has the meaning set forth in IC 6-3.1-24-2.
Sec. 3. As used in this chapter, "special needs child" means a child who has been determined by the division of family and children, a child placing agency (as defined in IC 12-7-2-31 ), or by
a circuit or superior court to be a child who:
(1) is a citizen or resident of the United States (as defined in 26 U.S.C. 217); and
(A) less than eighteen (18) years of age and:
(i) cannot or should not be returned to the home of the child's parents; and
(ii) is reasonably difficult to place with adoptive parents because the child is at least two (2) years of age, is part of a group of siblings to be placed in the same home, is a member of a minority group, or has a disability; or
(B) at least eighteen (18) years of age and has a disability that would limit the child's ability to live independently of the adoptive parents.
Sec. 4. As used in this chapter, "taxpayer" means an individual who has any adjusted gross income tax liability.
Sec. 5. As used in this chapter, "department" refers to the state department of revenue.
Sec. 6. (a) A taxpayer who legally adopts a special needs child after December 31, 2002, is entitled to a tax credit under subsection (b).
(b) The department shall grant a tax credit against adjusted gross income tax liability equal to the lesser of:
(1) five thousand dollars ($5,000); or
(2) the amount of qualified adoption expenses incurred;
for each special needs child adopted. However, the amount of the credit must be reduced by an amount equal to any deductions, credits, or funds for qualified adoption expenses that the taxpayer is eligible for from any state or federal law or program.
Sec. 7. A husband and wife who adopt a special needs child and who file separate tax returns may take the credit in equal shares or one (1) of them may use the whole credit.
Sec. 8. (a) If the amount determined under section 6(b) of this chapter for a taxpayer in a taxable year exceeds the taxpayer's adjusted gross income tax liability (IC 6-3-1 through IC 6-3-7 ) for that taxable year, the taxpayer may carry the excess over to the following taxable years. The amount of the credit carryover from a taxable year shall be reduced to the extent that the carryover is used by the taxpayer to obtain a credit under this chapter for any subsequent taxable year.
(b) A taxpayer is not entitled to a carryback or refund of an unused credit.