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F I S C A L I M P A C T R E P O R T

SPONSOR HCPAC

ORIGINAL DATE

LAST UPDATED

2/22/07

2/26/07 HB 973/HCPACS

SHORT TITLE Special Needs Child Adoption Tax Credit

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($540.0)

($540.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

SUMMARY

Synopsis of Bill

The House Consumer and Public Affairs Committee substituted House Bill 973 which enacts a

new credit against personal income tax liability for taxpayers who adopt a special needs child up

to $1,000. The credit is refundable meaning if the credit exceeds liability then the excess is

refunded to the taxpayer. The credit can be claimed for each year that the taxpayer claims the

special needs child as a dependent on their federal income tax return.

A special needs adopted child is an individual (who may be over 18 years old) who is certified

by the Children Youth and Families Department (CYFD) as meeting the definition of “difficult

to place," with the caveat that if the classification is based on a physical or mental impairment or

an emotional disturbance that impairment or disturbance shall be at least moderately disabling.

The effective date is January 1, 2007.

It appears the substitute was to make the language identical to the executive’s proposal.

House Bill 973/HCPACS – Page

2

FISCAL IMPLICATIONS

TRD:

In tax year 2004, exemptions allowed under present law totaling approximately $1.2

million were claimed on slightly over 300 New Mexico tax returns, and thus averaged

approximately $4,000 per return. Taxpayers claiming the returns were subject to a tax

rate of slightly over 5 percent. Hence the resulting "tax cost" to the State of New Mexico

General Fund totaled approximately $60,000 (i.e., $1,200,000 x .05). The average tax

benefit was approximately $125 per child or 5% of $2,500.

The recurring impact shown above assumes 350 households with 600 special needs

children would get credits totaling $600 thousand per year for an average benefit of

$1,700 per household. The $540,000 recurring fiscal impact above is the difference

between the estimated $60,000 impact of the current program and the estimated $600,000

annual impact of the proposed statute.

SIGNIFICANT ISSUES

From Special-needs.adoption.com:

Over 100,000 children are waiting to be adopted right now out of the more than half

million US children in foster care. The rest will eventually be reunited with birth families

or will "age out" of the system while waiting to be reunited. Of the waiting children with

special needs who are younger than school age, many are of minority race, and all of

them are members of sibling groups, or have mild to severe disabilities, or are at risk of

developing disabilities later due to risk factors. Some children have correctable problems.

Others will "outgrow" their challenges. A few are remarkably resilient and will not

develop expected problems. However, adoptive parents must be ready to face and deal

with all types of outcomes, from the bleak to the near-miraculous.

[Cost of adoption]

The cost varies from place to place but the good news is that with careful planning,

special needs adoption can be a low-cost or no-cost process. Most expenses involved in

most of the authors' domestic special needs adoptions were reimbursed to them.

State or public adoption agencies do not usually charge for any special needs adoption

service. Fees at private adoption agencies for adoption services vary widely from no

charge at all to several thousand dollars, or more.

When a domestic special needs adoption takes place in a state offering "Purchase of

Services", the state with custody of the child may pay some or all of the private adoption

expenses for the adoptive parent or parents. This is how a private agency can afford to

operate without charging the family a home study or placement fee. Adoptive parents

should be sure and ask a private agency about "Purchase of Service adoptions."

In the U.S., up to $2,000 of a family's one-time special needs adoption expenses are

refundable for children who meet the requirements under the federal law. States may

allow up to $2,000 per child, or less, but not more. The expenses are reimbursed after the

adoption has been completed. Adoptive parents should keep receipts for all expenses

House Bill 973/HCPACS – Page

3

from the home study to the cost of photo listing book subscriptions. They should be sure

their agency participates in this refund program, and then be sure and request the

necessary forms after placement has occurred but before the adoption is legally finalized.

State and federal programs are also available to help parents with the cost of raising

adopted children with special needs.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

It is likely that special-needs adoptions take place without regard to any tax credits or incentives

so there is not likely to be a decline of these adoptions. However, the financial burdens are

relieved to a small but significant extent with credits like this.

NF/nt