Employers can pay adoption expenses for their employees

published in McAfee & Taft EmployerLINC | July 28, 2014

By Brandon Long

Almost 40 years ago now, a young mother had the courage to give me up for adoption to my parents who could not themselves have children. All of my life, I have reaped the almost-unbelievable benefits of my biological mother’s courage and my parents’ love – and so does my family now. Yet, my adoption would never have happened without the generosity of another individual who was willing to pay the expenses.

adoptionFast forward to present, and because of important legal developments over the past few years, employers of all shapes and sizes have the ability and the opportunity to help their employees with adoption expenses. It’s fairly easy. An employer who desires to help its employees with adoption expenses just needs to establish a written plan document that spells out the terms of the program, including (a) who is eligible to receive the benefit, e.g., those employees who work a certain number of hours per week; (b) the types of expenses that will be paid by the employer, e.g., agency fees, court costs, attorney fees, etc.; (c) the maximum amount that will be paid or reimbursed under the plan (subject to applicable legal limits); and (d) the documentation an employee will be required to provide to obtain payment or reimbursement. The plan should also have some additional nerdy legal stuff, for example, a limitation so that the plan does not result in discrimination in favor of owners. Once the plan is established, the employer would then provide a copy of the adoption assistance plan to its employees, and establish internal forms for employees to complete to seek benefits under the plan.

Subject to certain limitations, amount paid under an adoption assistance plan are generally excludable from an employee’s income. Amounts paid are not subject to federal income tax withholding, but are nonetheless reported by the employer in box 12 of IRS Form W-2. Amounts paid under the plan would, however, be subject to certain other withholdings, including withholdings for federal Social Security and Medicare tax (FICA) and federal unemployment tax (FUTA). The employer would also want to understand any applicable state law requirements, but this too should be fairly easy.

As you evaluate your menu of benefits for 2015, keep in mind that you have the ability to offer an adoption assistance plan to your employees. Because of your generosity, your employees could have the opportunity to adopt a child and radically impact their life (and perhaps yours too) forever.