AB 287

In calculating an individual's Wisconsin adjusted gross income (AGI), an

adoptive parent may generally, under current law, deduct from federal AGI up to

$5,000 that is expended during the year to which the claim relates and the preceding

two years for adoption fees, court costs, or legal fees relating to the adoption of a child.

Under federal law, there is a refundable adoption expenses tax credit (which

will become nonrefundable after 2011), under which amounts of up to $13,170 (for

taxable year (TY) 2010, and indexed for inflation for TY 2011) of qualified adoption

expenses may, generally, be credited against the federal tax that is imposed. If the

allowable federal credit exceeds the taxpayer's tax liability, the excess credit is

refunded to the taxpayer. For taxable years beginning after December 31, 2011, the

federal credit becomes a nonrefundable credit and the maximum allowable credit

will be approximately $12,170 for taxable year 2012, and $5,000 (or $6,000 for a

special needs child) thereafter for qualified adoption expenses.

The Internal Revenue Code defines qualified adoption expenses to mean,

generally, reasonable and necessary adoption fees, court costs, attorney fees, and

other costs that are directly related to the legal adoption of an eligible child by the

taxpayer, and defines eligible child to mean an individual who is under the age of 18

or who is physically or mentally incapable of caring for himself or herself.

Federal law provides that, if adoption expenses are paid or incurred during a

taxable year before the taxable year in which the adoption is finalized, the credit for

those expenses is allowed during the year following the year during which the

expenses are paid or incurred, and, if the expenses are paid or incurred during or

after the year in which the adoption becomes final, the credit for those expenses is

allowed for the year in which they are paid or incurred.

If the amount of the federal credit for which a taxpayer is eligible exceeds the

amount of taxes owed, the excess amount of credit may be carried forward for up to

five years. The maximum credit limit is for each child adopted and is a cumulative

limit. The amount of the credit that may be claimed is phased out to zero as the

claimant's modified federal AGI rises from $182,520 to $222,520 (for taxable year

2010). With regard to the adoption of a child who is not a citizen or resident of the

United States at the time that the adoption proceedings commence, the credit may

be claimed only upon the adoption becoming final.

This bill creates a nonrefundable individual income tax credit for adoption

expenses incurred by an individual who is eligible for, and claims, the federal credit.

The credit may be claimed for an amount of qualified adoption expenses, up to

$5,000, to the extent that the expenses exceed the amount that the claimant is

eligible for, and claims, under the federal credit. For claimants who are nonresidents

or part-year residents of Wisconsin, the credit that may be claimed is prorated based

on the ratio of the claimant's Wisconsin AGI to federal AGI. The maximum credit

that may be claimed each fiscal year by all claimants is $500,000. If the total amount