As of last week, the ability to withdrawal your application, repay benefits, and reapply for social security retirement benefits at a later age is no longer an option if you filed more than 12 months ago.  This change makes the initial filing decision that much more critical, since there is now a very limited time-frame for do-overs.

The change was effective on December 8, the date of the announcment.The new rules limit the time period for beneficiaries to withdraw an application for retirement benefits to within 12 months of the first month of entitlement and to one withdrawal per lifetime. In addition, beneficiaries entitled to retirement benefits may voluntarily suspend benefits only for the months beginning after the month in which the request is made.  The new rules are open to comment for the next 60 days, and the social security administration may release new final rules in February to address comments made.

If you filed within the last year with the consideration that you might withdrawal in the future, it's really important for you to take action now to decide if you want to withdrawal your benefits and start the process to avoid reduced benefits for life.  If you filed more than 12 months ago and were planning on withdrawing your application, updating your retirement income plans to see how they look without this option is a good idea.

For complete information on this change, visit the Federal Register government website and please feel free to give me a call with any questions.

There are some changes to federal adoption assistance programs.  If you know someone in the adoption process, please share this information with them.  The assistance can be substantial!

If you adopt a child, you may be able to claim a tax credit for qualifying expenses you paid. Further, certain amounts reimbursed by your employer for qualifying adoption expenses may be excludable from your gross income.

Increased dollar amounts for 2010

If your employer has an adoption assistance plan, for each adoption you can exclude from income up to $13,170 (in 2010) of adoption assistance paid by your employer or paid by you through salary reduction. For adoption expenses paid by you and for which this exclusion is not available, a tax credit is available for up to $13,170 of adoption expenses per adoption. The $13,170 amount is subject to phaseout and is reduced if you have modified adjusted gross income (MAGI) above $182,520 and is fully phased out if you have MAGI of $222,520 (in 2010). If you adopt a child with special needs, the $13,170 amount (subject to phaseout) is available regardless of the amount of actual adoption expenses. The dollar limit is for aggregate expenses for all years with respect to an adoption. (Same rules and limits--adjusted for inflation--apply to adoptions in 2011.)

When to claim adoption expenses

Domestic adoptions: You generally claim the exclusion for qualified adoption expenses in the year your employer pays the qualifying expenses. For qualified adoption expenses you paid in a year before the adoption is final, you claim the credit in the year after you paid the expenses. You claim the credit for qualified adoption expenses you paid in the adoption year or a later year in the year you paid the expenses.

Foreign adoptions: You claim the exclusion or the credit for qualified adoption expenses you (or your employer) paid in a year before the adoption is final in the year the adoption is final. You claim the exclusion or the credit for qualified adoption expenses you (or your employer) paid in the adoption year or a later year in the year the expenses are paid.

Example: Veronica adopts a child in a domestic adoption that is final in 2010. Veronica paid qualified adoption expenses of $1,000 in 2008, $5,000 in 2010, and $2,000 in 2011. Veronica can claim a credit for $1,000 of qualified adoption expenses in 2009, $5,000 in 2010, and $2,000 in 2011.

Refundable credit in 2010

Starting in 2010, the adoption expenses credit is refundable. That is, if the credit exceeds the amount of income tax otherwise due, the excess is refundable to you.

Credits carried over to 2010

The adoption expenses credit was not refundable prior to 2010. As a result, you may have a credit from a prior year carried over to 2010. Such a credit is refundable in 2010. Furthermore, a credit carried over to 2010 is not subject to the phaseout income limitations in 2010.

Example: John and Mary adopted a child in 2009. They paid $10,000 of qualified adoption expenses and claimed a $10,000 adoption expense credit for 2009. Their income tax liability was $6,000 before the adoption expense credit, so they could use only $6,000 of the credit in 2009. John and Mary can carry forward $4,000 of adoption expense credit from 2009.

In 2010, John and Mary's income tax liability before the adoption expense credit is $3,000. John and Mary can offset their income tax liability with $3,000 of the adoption expenses credit and receive a refund of the remaining $1,000 of credit in 2010.

Substantiating the adoption

Starting with your 2010 tax return, you must substantiate the adoption or attempted adoption in order to claim the adoption expenses exclusion or credit. For a domestic or foreign adoption that has been finalized in the United States, you must attach a copy of an adoption order or decree to your federal income tax return. For a domestic adoption that is not final, you can use an adoption taxpayer identification number or attach various documents to your federal income tax return. If you claim adoption expenses under the special provision for a child with special needs, you must attach a copy of the state determination of special needs.

You must file paperwork

If you claim the adoption expenses exclusion or credit, you must send in a printed-out income tax form along with any substantiation documents--even if you file electronically.

Form 8839

For 2010, you claim the adoption expenses exclusion and credit on IRS Form 8839, Qualified Adoption Expenses.