Offering Adoption Assistance Benefits to Employees

Many companies offer an adoption assistance program to employees. Are you thinking about providing adoption assistance benefits to employees? If so, read on to review the benefits of providing adoption assistance and the steps you need to take.

What are adoption assistance benefits?

Adoption assistance benefits are payments and expense reimbursements employers provide to employees to help with expenses related to the adoption of a child. Employers contribute to adoption assistance.

Adoption assistance is considered a type of fringe benefit. Fringe benefits are any additional benefits you offer employees along with their wages.

The IRS states qualified adoption assistance benefits must be necessary and reasonable. Expenses that employers may cover for adoption assistance include:

  • Adoption fees
  • Attorney fees
  • Court costs
  • Travel expenses

For an adoption assistance program to be qualified by the IRS, employers must fulfill certain criteria.

You must create a written plan that benefits employees. And, you need to notify eligible employees about the program. You cannot give preferential treatment to owners, shareholders, or highly paid workers.

The amounts given to workers for adoption assistance vary. Many employers set an annual or lifetime limit to the amount each employee can receive.

Adoption assistance benefits: Employers can provide adoption assistance to cover employees' adoption fees, attorney fees, court costs, and travel expenses.

Adoption assistance and payroll taxes

The way you tax benefits depends on the type of benefit. For adoption assistance benefits, you and your employee must pay Social Security and Medicare taxes.

You can exclude up to $16,810 (2024) of qualifying adoption assistance benefits from an employee’s gross income. This means that adoption assistance under the annual limit is exempt from federal income tax withholding. However, it is not exempt from federal unemployment taxes (FUTA).

Report the wages and taxes withheld for adoption assistance on Form W-2, Wage and Tax Statement. Mark adoption assistance benefits in Box 12 using Code T.

If you use payroll software, you can set up a pre-tax deduction for adoption assistance benefits.

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Benefits of offering adoption assistance

Adoption assistance not only benefits your employees, but it can also benefit you as an employer.

For employers, offering adoption benefits can boost employee recruitment and retention. And, it can make your employer reputation stand out from the competition.

Some other benefits of offering adoption assistance benefits include:

  • Supporting your employees
  • Increasing employee loyalty
  • Adding a competitive advantage to your company
  • Giving your employees time to bond with their adopted child
  • Helping make adoption more affordable to employees

Employees can also qualify for an adoption tax credit. The amount of the tax credit depends on how much the employee spends on adoption. The non-refundable tax credit amounts vary each year. Employers do not qualify for a tax credit for offering adoption assistance.

Steps for offering adoption assistance

If you want to begin offering employees adoption assistance, there are a few steps you must follow.

1. Choose which benefits to offer

Begin creating your written plan by looking at what adoption assistance benefits you would like to offer employees. Some questions you might want to consider include:

  • What expenses are you willing to cover? (e.g., adoption fees)
  • How much will you give to employees for adoption assistance?
  • Do you want to offer employees additional paid time off for adoption?

When selecting the benefits, review IRS regulations to make sure what you offer aligns with their rules.

2. Set limits based on employees

Take into consideration what types of employees you have and how long they have been with your company. Determine a fair amount for each type of employee.

Ask yourself questions like:

  • What expenses will I cover for part-time vs. full-time employees?
  • How much will I cover for an employee who’s worked for the company for five years? 10 years?

3. Add adoption assistance to your company policy

After you determine the above factors and implement employer adoption assistance, lay out the adoption assistance benefits in your employee handbook.

Include your adoption assistance policy under your benefits section in your handbook.

4. Notify eligible employees

After you create your plan, be sure to notify all eligible employees. Consider having a meeting to discuss employees’ options and answer questions.

After you create your adoption assistance benefits policy, you need a way to store and distribute it to employees. Patriot’s HR software add-on lets you upload documents that you can share with employees. And, the software integrates with Patriot’s online payroll. Try them both for free today!

This article has been updated from its original publication date of April 10, 2019.

This is not intended as legal advice; for more information, please click here.

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