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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3170
Experience:  IRS licensed Enrolled Agent and tax instructor
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I have a friend who receives adoption subsidy payments for

Customer Question

I have a friend who receives adoption subsidy payments for two children that she has adopted. The adoption subsidy payments are her only source of income. It is my understanding and hers that she needs to file a tax return because she uses part or most of the subsidy payments for to pay for her house, automobile, clothing and other things that she may desire.
What percentage or amount of the adoption subsidy is considered income to her and where do we file it on her tax return?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.
Hi. My name is ***** ***** I will be happy to help you. It is not about the percentage, it is about how the income was reported. Did she received 1099 of any type?
Customer: replied 1 year ago.
No. She did not receive a 1099.
Customer: replied 1 year ago.
She has used the adoption subsidy income to qualify for the purchase of her home and other situations that require verification of income.
Expert:  emc011075 replied 1 year ago.
Ok. Than she has more flexibility. There are no rules how much should be reported as taxable income. IRS publications say that adoption assistance benefits may be taxable if they exceed the amount an adoptive family spends to support the child. So it really depends where the taxpayer live and how much subsidy she receives. Supporting a child in the middle of Montana will be less expenses than supporting a child in the middle of Manhattan. If this is her only income, I would calculate her average monthly expenses (mortgage, utilities, property taxes, food, clothing and transportation) and claim it as taxable.
Customer: replied 1 year ago.
The summary or summation of my question is: Are the adoption subsidy payments that she receives taxable and should they be filed as income to her?
Expert:  emc011075 replied 1 year ago.
In generally, subsidies are not taxable as long as they are used for the right purpose. But from what you are describing she is not using the subsidy just for the child's benefits, she is benefiting from it as well. If this is her only income (by a choice) and she support just herself and the child from it, I would claim 50% as taxable.
Customer: replied 1 year ago.
Where does she claim or put this income on her tax return? Does having this income qualify her to receive Earned Income Credit?
Expert:  emc011075 replied 1 year ago.
I would put it as other income on line 21 and no, this income will not qualify her for EITC. First it is obviously not an earned income and second none of the government or state subsidies (unemployment, welfare, food stamps) will qualify your for EITC.
Customer: replied 1 year ago.
Thank you.
Expert:  emc011075 replied 1 year ago.
You're welcome. Is there anything else I can help you with today?
Expert:  emc011075 replied 1 year ago.
Here's answer from Turbo Tax: this case IRS doesn't provide clear guidelines so it is left to the preparer's interpretation of the tax law. Anyway, if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.