Adoption Subsidy

Today TaxMama hears from Ben in Ohio who tells us, “In 2006 my son adopted a Downs Syndrome child. He receives a state subsidy from Ohio each month for those who adopt special needs kids. We don’t know if this is taxable income. “

Hi Ben

Thanks for your note.

I’m afraid that I am not familiar with Ohio taxes and subsidies. The North American Council on Adoptable Children (NACAC) website has really helpful information for adoptions in each US state. There’s helpful information about adoptions subsidies – but no mention about income tax issues.

http://www.nacac.org/adoptionsubsidy/stateprofiles/ohio.html

In general, these kinds of government payments are not taxable. However, when it comes to taking any deductions or Dependent Care Credits, your son will need to deduct the subsidy payments from his total expenses before being able to get tax benefits.

For instance, suppose he’s paying $200 per month for medical insurance for his child and wants to itemize that cost on Schedule A. He’ll need to deduct the $250 subsidy he’s receiving. So, there won’t be a deduction for the child’s medical insurance at all. That leaves $50 per month to apply towards other the child’s other expenses.

Then, suppose he’s paying $400 per month for child-care. He’ll need to deduct the $50 left over, in the example above. That means he can apply $350 per month towards the Dependent Care Credit.

You get the idea.

And remember, you can find answers to all kinds of questions about adoptions and subsidies, and other tax issues, free. Where? Where else? At TaxMama.com

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