SD6 - Study of Tax Incentives and Adoption Subsidies Offered by Other States to Support Adoption


Executive Summary:
Senate Joint Resolution No. 377 of the 2007 Session of the Virginia General Assembly directed the Virginia Department of Taxation to study the tax incentives and adoption subsidies offered by other states in order to support adoption.

Out of the fifty states, twenty-three offer some form of tax incentive to taxpayers who choose to adopt. Of these, thirteen offer a tax credit, nine offer a subtraction or a deduction, and one, Utah, offers both a credit and a deduction. Because Kansas offers two credits and North Dakota offers three subtractions, there are a total of twenty-seven tax incentives offered by the twenty-three states. Some of the tax incentives offered by seven states (Kansas, Maryland, Missouri, New Mexico, North Dakota, South Carolina, and Utah) are tied in some way to the adoption of a special needs child.

All fifty states offer both state and federal (Title IV-E) adoption subsidies for those who adopt special needs children. The amount of these subsidies varies depending on the age of the child and the state in which the adoption takes place. While Virginia offers a lower subsidy amount than a number of other states, it does offer the maximum amount allowable under federal law, which is one hundred percent of its foster care maintenance payment.

There are several programs that offer financial assistance for education to children who have been in the foster care system. While many of these benefits are limited to children who aged out of the system, some may also be applicable to children who were in the foster care system but then adopted at older ages. In addition, several states, including Virginia offer benefits specifically to children who have been adopted from the foster care system.

The various financial incentives that exist for those who adopt are primarily directed at removing any disincentives for adoption. This is particularly true for those who choose to adopt children with special needs. While Virginia does not have any tax incentives available for those who adopt, the Commonwealth does provide adoption subsidies that are 100% of the foster care rate. Thus, any disincentive to adopt a child from the foster care system has been removed.

Adoptive parents in Virginia benefit from the federal tax credit for their adoption expenses, and may also receive adoption subsidies and other services from the Commonwealth. Their adopted children may even receive benefits for higher education. While the creation of a tax deduction or credit would reward these adoptive parents, it might not encourage any additional individuals to adopt.

A more effective use of Virginia’s resources may be to increase funding for adoption subsidies and services to children adopted out of the foster care system. Governor Kaine has recently proposed such action in his budget proposal for the 2008-2010 biennium. His proposals include an increase in state and federal matching funds for the basic care foster rate and an increase for adoption subsidy funding. The budget proposals would also provide state and federal matching funds to improve recruitment and retention of foster and adoptive parents.