Adoption Subsidies


James A. Kenny, PhD

Many different subsidies are available for foster parents who wish to adopt. These subsidies offer an incentive to provide permanence. Continuing financial assistance is possible in five different packages. They include continuing the monthly payments of per diem, health insurance through Medicaid, reimbursement for expenses incurred by the adoption, a federal income tax credit, and college tuition. Your new child is entitled to all the financial support that is offered.

The North American Council on Adoptable Children (NACAC) is the best source for accurate information on the many and differing subsidies available in each of the 50 states. NACAC believes that adoption assistance is vital for families raising children with serious behavioral, emotional, or physical disabilities. Because of their commitment, they welcome individual and personal questions about adoption assistance.

Since 1994, NACAC has operated the Adoption Subsidy Resource Center to educate parents and professionals about the benefits available to children and youth adopted from foster care. Profiles on each of the state subsidy programs are provided. In addition, NACAC offers definitions of special needs, and fact sheets on various aspects relating to post-adoption support programs.

Contact NACAC’s Adoption Subsidy Resource Center at 800-470-6665. E-mail to [email protected]. Website:

1. Continuing the Monthly Payments of Per Diem

Under the Title IV-E Adoption Assistance program (Title IV AA), the federal and state governments work together in an effort to continue and try to match the monthly reimbursement the foster child received prior to adoption. The purpose is to assure that a family with their newly adopted child does not suffer financially because of their willingness to provide a permanent home. Unfortunately, some states will try not to match the rate and offer as little as possible. In this case, negotiating is critical. Post-adoption per diem can continue until age 18, and in some special cases, be extended till age 21.The IRS does not count this Adoption Subsidy as income.

To be eligible for most subsidies, the child must qualify as having special needs. While the states define special needs in various and confusing ways, the overall meaning is relatively clear. A child with special needs is one who is “hard to place.” The qualifying definition may be thought of as simple as 1-2-3.

One, the rights of the birth parents must have been terminated. Two, the child must be more difficult to adopt because of age, belonging to a sibling group, or having a diagnosed medical or psychological problem. Three, the state must have made a “reasonable effort” to find a family willing to adopt the child without any subsidy. An exception is made to this third condition, however, if moving to another family is not in the child’s best interests. This condition may arise if the child has a significant emotional bond with foster parents who want to adopt or a relative is willing to adopt.

While still considered to have special needs, some children may not have been eligible for federal monies. In these cases, State Non-Title IV-E funds may fill in the gap. Every state seems to have a different definition or approach to adoption assistance. NACAC provides state profiles and will respond to individual questions about local eligibility for subsidies. (

2. Medicaid

Children who have a federally funded AA subsidy are automatically eligible for Medicaid benefits. For foster/adopted children who are not eligible for IV-E AA, an agreement may include Medicaid, depending on the rules of the state that enters into the agreement. Interstate adoptions can become very complicated and may require the assistance of NACAC and a knowledgeable attorney.

Continuing Medicaid coverage is critical for most children who are adopted from foster care. You also need to make certain ahead of time that your child will continue to be covered by Medicaid. Even after approval, however, coverage can continue to be a problem. It may be difficult to find out which health care providers accept your type of Medicaid. Coverage may cease when the State switches you from one private contracted provider to another that does not pay for your type of Medicaid. In addition to NACAC, a good source of local information about how to handle these problems will be your fellow foster/adoptive parents.

3. Adoption Expenses (NRAE)

Federal monies are available for reimbursement of non-recurring adoption expenses up to $2000. These are one-time expenses directly related to the adoption of a child with special needs. They may include attorney fees, home study fees, replacement of the birth certificate, and travel to and from the child, including mileage, lodging and meals. In many states, the prospective adoptive parents are required to hire their own attorney, and frequently those attorneys charge what is allowed by NRAE. Some states may pay the attorney directly so that the family does not have to pay out of pocket and be reimbursed later.

4. Federal Income Tax Credit

Since 2003, families who adopted a child with special needs from foster care could claim a federal adoption tax credit even if they had no adoption expenses. Children who receive adoption assistance/subsidy benefits are considered children with special needs. Other adoptive families are also eligible for the credit, but must have (and be able to document, if requested by the IRS) qualified adoption expenses. The tax credit was refundable for 2010 and 2011, but not for 2012 or future years. A refundable tax credit is one you get back regardless of what you owe or paid in taxes for the year. When the credit is not refundable, you can only use up to what you have in federal income tax liability. Any unmet amount of the credit can be carried forward to the next tax year for up to six years. After that, the tax credit will disappear. In recent years (2011 to 2014) tax credits of up to $13,000 have been allowed. This is a one-time credit for adoption. (

5. College Assistance

Children adopted from foster care at age 13 or older can apply as an independent student for FAFSA (Free Application for Federal Student Aid). Children adopted from foster care after their 16th birthday can be eligible for Education and Training vouchers. Some states have tuition-waiver programs for children adopted from foster care. The amount of tuition waived is typically the in-state amount for state colleges and universities in the state where the child was adopted. NACAC has a fact sheet on the different state college tuition programs.


Negotiating Subsidy Rates and Other Entitlements

Federal Law states: “The amount of the payments to be made in any case….shall be determined through agreement between the adoptive parents and the state or local agency administering the program….which shall take into consideration the circumstances of the adopting parents and the needs of the child being adopted, and may be adjusted periodically, with the concurrence of the adopting parents….depending upon changes in such circumstances.”

Some states offer the maximum which is the appropriate foster care rate for the child’s current needs. Other states begin the negotiations by offering zero. This may be understandable as they believe they are saving the state money. However, you need to know the maximum to which your child may be entitled. In most states, once you have the adoption subsidy, the amount can be renegotiated later if there is a new diagnosis or a change in family circumstances. A few states will not allow a family to renegotiate to a new maximum even if the child’s needs have greatly increased.

It is in your child’s best interest to ask for the maximum rate. The state may argue that if you really loved this child, you wouldn’t ask for money. Your answer should be that the money is intended to support the child. The child’s needs have not changed so why should the amount of support.

When applying for reimbursement of adoption expenses, start by getting the diagnosis to affirm special needs status. Then document everything. If the state or agency asks for an accounting, include every expense connected to the adoption that you can think of.

Hiring an Attorney

You need to be represented by your own expert. Because of many competing parties and positions, foster/adoptive parents should have their own attorney to help negotiate the above subsidies. Your interests differ from those of the state and any competing families in a contested adoption. Having your own attorney is especially critical where negotiations are involved.

When you are hiring your own attorney, ask what specific services he or she will provide and how much it will cost. Funds up to the NRAE amount allowed in your state are available to pay for your attorney. Get an attorney who is experienced and knowledgeable about foster care and adoption policies and subsidies. To find a good attorney, ask your fellow foster parents.

Appeal for a Fair Hearing

If the parents feel they have been treated unfairly by the agency, or in an untimely manner, they can request an administrative hearing. The most common reasons include a reduction in the foster care or adoption subsidy rate without due notice or if the parents finalized an adoption of a special needs child without subsidy and believe the child is (and was) eligible. The right to pursue a fair hearing through appeals applies to other issues as well. If the parents are still not satisfied, they can appeal further to the court.


Foster-to-adopt parents are entitled to continuing support after the adoption. This may include a monthly per diem subsidy, medical insurance, reimbursement for expenses, a federal tax credit, and help later with college tuition. These entitlements should be established before the adoption is finalized. To assure maximum benefits for their child, adopting parents may profit from the services of a knowledgeable attorney in negotiating and in court.