The adoption account option is for expenses paid in connection with adopting a qualified child.
Employees set aside pre-tax payroll deductions to pay qualified expenses, including home study and application fees, reasonable and necessary legal adoption fees, court costs, attorney fees, agency fees, medical services and counseling, travel and lodging fees and other expenses which are directly related to, and the principal purpose of which is for a legal adoption.
Adoption expenses that qualify for payment must be for an individual who has not attained the age of 18 at the time of the adoption, a child that is physically or mentally incapable of caring for himself, a child with special needs who cannot or should not be returned to the home of his or her parents and a specific factor or condition makes it reasonable to conclude that the child cannot be placed with adoptive parents unless assistance is provided as determined by a state. The child must be a U.S. citizen or resident.
Although participants won’t save on FICA taxes, the employee will save federal and state taxes (where applicable). Employees that expect to pay more than the annual limit for any single adoption attempt should consider taking advantage of both a tax credit on IRS Form 1040 and the adoption assistance account.