Adoption-Friendly Workplace Employer Toolkit

While these benefits are a relatively small investment for most organizations, they can have a life-changing impact for families and children waiting for a permanent home.

In fact, a study conducted by The Harris Poll on the Foundation’s behalf showed that 64% of Americans say that their employer’s assistance with adoption expenses impacts their decision to adopt. And 68% say paid leave for adoptive parents impacts their decision to expand their family through adoption.

Employers are increasingly offering these benefits to:

• Strengthen employee loyalty, goodwill and productivity
• Provide time and support for employees to bond with their child(ren)
• Gain a competitive edge in recruitment and retention
• Make adoption more affordable
• Enhance the organization’s family-friendly image
• Help move youth waiting in foster care to safe, permanent homes
• Recognize the need to support adoptive and foster parents
• Be responsive to research that shows parental leave is critical to a child’s health

An Adoption Assistance Program is a voluntary employer-sponsored benefit that financially assists or reimburses employees for expenses related to the adoption of a child. This is a formal, written plan maintained by an employer.

The employer determines:

• Whether the adoption assistance program will apply only to employees who finalize an adoption, or also to those with unsuccessful adoption efforts
• The amount of financial reimbursement available to eligible employees (see IRS Topic 607)
• Employee eligibility requirements

An adoption assistance program must meet the following requirements:

• Benefit all eligible employees, not just “highly compensated” employees
• Pay no more than five percent of its benefits to shareholders or owners (or their spouses or dependents)
• Give reasonable notice of the plan to eligible employees
• Provide reasonable substantiation that payments or reimbursements are for qualifying expenses

Many employers maintain the same eligibility requirements for adoption benefits as they do for maternity, paternity or other organization benefits. Most often, full- and part-time employees are eligible, and the effective date ranges from immediately upon hire to one year of service.

For the credit and exclusion, qualified adoption expenses include:

• Reasonable and necessary adoption fees
• Court costs and attorney fees
• Travel expenses (including amounts spent on meals and lodging while away from home)
• Other expenses that are directly related to, and for the principal purpose of, the legal adoption of an eligible child

According to the IRS Topic 607, Adoption Credit and Adoption Assistance Programs, an adoption assistance program allows eligible employees to exclude from taxable income expenses paid or reimbursed by their employers on their behalf for qualifying adoption expenses. If all requirements are met, an individual may take advantage of the adoption tax credit and the income exclusion. However, the maximum dollar limit cannot be exceeded.

The employee may take the adoption tax credit and exclusion for the same adoption, but not for the same expenses. The employee can claim the adoption tax credit for expenses that have not been reimbursed by the employer.

The maximum amount of employer-provided adoption assistance that may be excluded from the employee’s income changes every year. The income exclusion begins to phase out for taxpayers with incomes in excess of a specified amount that also changes every year. Employees are encouraged to use a tax professional when they adopt.

• Employers should refer to the current IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, which states that financial adoption assistance is not subject to federal income tax withholding, but is subject to Social Security, Medicare and federal unemployment taxation. It should be reported in box 12 of the employee’s W-2, using code “T” to identify the amount.

  Employees should refer to the current IRS Topic 607, Adoption Credit and Adoption Assistance Programs, regarding income exclusions and tax credits for qualified adoption expenses. Consult a personal tax advisor for details.

  This summary is provided for informational purposes only and is not intended to replace the counsel of a professional tax advisor. For more information from the Internal Revenue Service, visit irs.gov.

• Connect employees with adoptive and foster parent networks or support groups.
• Share resources for available grant programs (e.g., Ohio Adoption Grant Program).
• Educate employees about adoption and foster care with workshops or lending libraries.
• Understand that adoptive and foster parents may need a flexible work schedule to address times of transition.
• Celebrate with showers and gifts when employees adopt, just as you would celebrate employees welcoming birth children.
• Invite a staff member of the Dave Thomas Foundation for Adoption to speak to your employees about foster care adoption.

Many states also offer a state adoption tax credit. Learn more about what is available in your state and discover other financial resources for adoptive families.