Adoption Act Amends Tax Code Definition of Qualifying Child

On Oct. 7, President Bush signed the Fostering Connections to Success and Increasing Adoptions Act of 2008 (H.R.6893). The act focuses primarily on promoting adoption, but it also amends the definition of a qualifying child in the Internal Revenue Code. The definition is used to determine eligibility for certain tax benefits, such as the dependency exemption, the child tax credit, the earned income tax credit and the dependent care tax credit. In addition, it is referenced by many employer-sponsored health care and dependent care plans.

Under current law, a qualifying child of a taxpayer generally must:

• Live with the taxpayer for more than one-half the taxable year
• Be the taxpayer’s child, stepchild, sibling or stepsibling or a descendent of such a relative
• Be younger than a specified age

The age limit varies depending on the tax benefit in question. For example, a qualifying child must be younger than 17 for the child tax credit and under 13 for the dependent care tax credit. Taxpayers might be able to claim a relative who does not meet these three tests if the relative’s gross income is less than the taxpayer’s personal exemption amounts, he or she shares the taxpayer’s residence, and the taxpayer provides more than one-half of the relative’s support.

Under the Fostering Connections to Success and Increasing Adoptions Act, a child or dependent must be younger than the taxpayer (unless the dependent is totally and permanently disabled). Generally, a taxpayer may not claim an individual who is married and files a joint tax return as a dependent. Finally, while the act generally restricts these tax benefits to the child’s parents, the law makes an exception for a child who could be considered the qualifying child of both a parent and a nonparent (for example, a grandparent), as long as neither of the parents claims the child and the nonparent has a higher adjusted gross income than either parent.

The provision takes effect for taxable years beginning after Dec. 31, 2008.