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BILL # SB 1156 |
TITLE: income tax; subtraction; adoption fees |
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SPONSOR: Kern |
STATUS: As Introduced |
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PREPARED BY: Hans Olofsson |
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Beginning in Tax Year (TY) 2024, SB 1156 would increase from $3,000 to $40,000, the amount of the individual income tax subtraction for unreimbursed adoption expenses.
Estimated Impact
We estimate that the bill would have an annual General Fund cost of $178,500, beginning in FY 2025.
The National Council For Adoption (NCFA) released a report in 2022 that estimated the number of children adopted in 2019 and 2020 on a state-by-state basis. The NCFA reported these estimates for 3 separate categories of adoption: (1) domestic public ("foster care") adoptions, (2) domestic private adoptions, and (3) intercountry ("international") adoptions.
According to the NCFA report, the total number of adoptions in Arizona was estimated to be 3,458 in 2019 and 2,930 in 2020. The (15.3)% reduction in 2020 was believed to be attributable to the impact of the COVID pandemic and for this reason, we based our fiscal impact estimate of this bill on the pre-pandemic adoption levels reported for 2019. In that year, 3,216 children in Arizona were adopted through the state's public child welfare system; 217 children through domestic private adoptions; and 25 children through international adoptions.
According to "Creating a Family," a nonprofit national adoption and foster care education organization, the cost of adopting a child depends mostly on the type of adoption used. For domestic public ("foster care") adoptions, the cost typically ranges from $0 to $2,500 whereas for domestic private as well as international adoptions, the adoption expenses tend to vary between $25,000 and $40,000.
Under current law, taxpayers can deduct up to $3,000 from their state individual income taxes for certain types of adoption expenses, including unreimbursed medical costs. Since parents of children adopted through the state's foster care program typically incur expenses that are less than $3,000, we do not expect that there would be any additional General Fund cost associated with this type of adoption. For the other 2 types of adoption: domestic private and international adoptions, we estimate the General Fund would incur an additional cost of $178,500, beginning in FY 2025.
To derive our estimate, we first multiplied the number of domestic private (217) and international adoptions (25) by the expected cost per adoption (assumed to be $32,500, the midpoint between $25,000 and $40,000), which yielded a total cost of $7,865,500. Under current law, these adoptions would have qualified for a total deduction of $726,000 [= (217 + 25) x $3,000]. Therefore, under the bill, taxpayers would be able to deduct an additional $7,139,000 from their individual income taxes. At the current tax rate of 2.5%, this would translate into a General Fund cost of $178,500.
(Continued)
Local Government Impact
Beginning in FY 2024, incorporated cities and towns receive 18% of individual and corporate income tax collections from 2 years prior from the Urban Revenue Sharing (URS) Fund established by A.R.S. § 43-206. Therefore, under the bill, URS distributions to cities and towns would decrease by $(32,000) in FY 2027.
2/22/23