Important Topics:
PA Expanding Use Tax Awareness - NEW!
Adoption Tax Credit
PA Expanding Use Tax Awareness - NEW!
The Pennsylvania Department of Revenue is expanding it emphasis on proper Use Tax collection. Beginning with the 2011 Form PA-40, a new line item will be present on the face of the personal income tax return to report and pay use tax. Entry on this new line is required, even if the taxpayer is reporting $0 use tax due. Use Tax is the counterpart to the Sales Tax and is applicable to all taxable sales of goods and services for which the vendor does not collect and remit the sales tax for the consumer. The most common example of Use Tax being owed by a consumer is the purchase of goods that would ordinarily be subject to sales tax from an online vendor who does not collect and remit the sales tax on behalf of the consumer. While some online retailers are required to charge and remit sales tax, many are not. The end consumer/taxpayer is responsible for proper reporting and payment of the Use Tax.
For more information on the Use Tax, including a list of common goods and services that are subject to Use Tax, please download and review this brochure. You may also call our office if you have additional questions about reporting and paying Use Tax in Pennsylvania.
Adoption Tax Credit
Two tax benefits are available to offset the expenses of adopting a child. For 2011, adoptive parents may be able to claim a refundable credit against their federal tax for up to $13,360 ($13,170 for 2010) of "qualified adoption expenses" (see below) for each adopted child. That's a dollar-for-dollar reduction of tax—the equivalent, for someone in the 25% marginal tax bracket, of a deduction of over $53,000 for 2011 (and over $52,000 for 2010). Also, adoptive parents may be able to exclude from their gross income up to $13,360 for 2011 ($13,170 for 2010) of qualified adoption expenses paid by an employer under an adoption assistance program. Both the credit and the exclusion are reduced (phased out) if the parents' income exceeds certain limits.
Adoptive parents may claim both a credit and an exclusion for expenses of adopting a child. But they may not claim both a credit and an exclusion for the same expense.
Qualified adoption expenses.
To qualify for the credit or the exclusion, the expenses must be "qualified adoption expenses." These are the reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to the legal adoption of an "eligible child" (defined below).
Qualified adoption expenses don't include expenses connected with the adoption of a child of a taxpayer's spouse, expenses of carrying out a surrogate parenting arrangement, expenses that violate state or federal law, or expenses paid using funds received from a federal, state, or local program. Expenses that are reimbursed by an employer don't qualify for the credit, but benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify. Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) qualify only if the child is actually adopted.
Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption up to $13,360 for 2011 ($13,170 for 2010). They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,360 for 2011 ($13,170 for 2010) of actual expenses.
Eligible child.
An "eligible child" is a child under the age of 18 at the time the qualified adoption expense is paid. A child who turned 18 during the year is an eligible child for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for himself is also eligible, regardless of age.
Adoption credit is refundable.
The adoption credit is a refundable credit. So, if the sum of your refundable credits (including any adoption credit) exceeds your tax liability, the excess amount is an overpayment that can be refunded to you.
How to claim the credit or take the exclusion for qualified adoption expenses.
Adoptive parents who paid qualified adoption expenses or who received employer-provided adoption benefits must use Form 8839 to compute the amount of the credit and the amount of benefits that may be excluded from their gross income. In addition to filling out Form 8839, eligible taxpayers must include with their returns one or more adoption-related documents, detailed in IRS-issued guidance. These documentation requirements mean that taxpayers claiming the credit will have to file paper returns.
For more information about the Adoption Tax Credit, or for assistance in making sure that you get the full benefit of the substantial tax savings available to adoptive parents, please call our office at (717) 336-3801.
