Foster Care and Taxes 101

Child tax credit written on a pad with yellow highlight

Taxes here in the United States are notoriously complicated. It can be even harder to navigate and understand your tax forms if you're a foster parent.

For example, can you claim a foster child on taxes? It depends on several factors. The IRS is somewhat strict on its definition of foster children.

Unfortunately, there isn't much leniency if you make a mistake.

Find out whether your payments count as taxable income, if you can claim foster children, and more in this guide: Foster Care and Taxes 101.

Can You Claim a Foster Child on Taxes?

You may be able to claim the Earned Income Tax Credit (EITC) or get a Child Tax Credit. For tax purposes, foster and adopted kids are considered the same as biological dependents.

Your child must meet the IRS' definition of a foster child, which means they were placed with you by one of the following:

  • A state or local government agency
  • Indian tribal government
  • A court order
  • A tax-exempt organization licensed by a state or an Indian tribal government

Additionally, they must pass the four tests, per IRS guidelines.

Qualifying children or teens must be the right age, pass the foster child definition listed above, have lived in the same house as you for at least half of the tax year, and can't file a joint return.

The age test requires eligible children to be in one of three categories.

A child that is permanently and totally disabled can be any age. Kids under 19 at the end of the tax year and younger than you (and your spouse) count as well. Children under 24 at the end of the tax year who are full-time students and younger than you (and your spouse) can also qualify for the EITC.

The IRS also has guidelines on what a qualifying school is and what a full-time student means.

Claiming the Child Tax Credit

Parents can file and claim the Child Tax Credit to receive a tax break. You can claim the credit even if you don't normally file taxes.

Qualifying foster children must meet the following requirements:

  • A social security number
  • Under the age of 17 at the end of the year
  • Has lived with you for more than half the year
  • Provides no more than half of their financial support
  • Doesn't file a joint return with a spouse
  • Can be claimed as a dependent
  • Is a US citizen, US national, or a US resident alien

Your annual income (for 2022) can't be higher than $200,000 (or $400,000 if filing jointly). However, you might be able to claim a partial credit if you make more.

If you needed to pay someone to watch your foster children while you or your spouse had to work or look for a job, you may also be able to claim the Child and Dependent Care Credit.

Of course, you should consult with your tax preparer to get more details and ensure you don't make a mistake while filing. It's easy to assume you meet the eligibility criteria, but a misunderstood definition can result in an audit.

This article isn't intended to serve as legal advice but to offer guidance. Always seek help from a tax professional if you have questions.

Can Bio Parents Claim a Foster Child on Taxes?

Only one person can claim a qualifying child. Therefore, some foster parents wonder if the biological parents have the right to mark a foster child as their dependent.

Even if a foster child lives with you, their birth parents can claim them as dependents. In this case, you would be disallowed or unable to receive the credit.

This may also happen if a foster child has been placed with more than one family within a tax year. If more than one taxpayer claims them, the qualification goes to the child's parent.

You may choose to appeal the decision if you're disallowed. You can then contact the IRS and provide supporting evidence that the foster child was placed in your home by an approved agency and has been there for over six months.

Again, taxes can get complicated. That's why it's worth speaking to an expert.

Is Foster Care Income Taxable?

Foster parents receive reimbursement for the care they provide. These payments are meant to help care for a child and not into your pocket. As such, the foster parent pay rate/payments/stipend does not count as income, and it's not taxable.

Any state, local government, or child-placing agency care payments don't affect your taxable income.

The amount you receive varies depending on a child's age and needs. Still, the stipend may not always be enough. We recommend considering the financial impact of fostering so you can provide the right level of care.

What About Charitable Donations?

Since many foster care agencies are classified as registered nonprofits, any donations to them may be considered tax-deductible.

For example, you can claim that on your taxes if you donated money or items to help a foster agency. However, make sure you keep records of your donations.

You can deduct your unreimbursed foster care expenses if the costs qualify and if the agency can accept charitable donations. Qualifying examples include out-of-pocket charges to feed, clothe, and provide care for a foster child.

If the organization can't receive charitable donations, unreimbursed expenses count towards support. You can claim a foster child as a dependent if you're providing at least half of their support.

Work with a professional tax preparer knowledgeable about foster care to avoid making any mistakes on your paperwork. State and federal guidelines often change, so it's crucial to remain up-to-date with recent policies.

Make Filing Taxes Easier

If you foster, you've likely asked yourself, "Can you claim a foster child on taxes?" The answer is yes, as long as they meet all of the IRS' qualifications.

While we're not professional tax preparers, we hope this guide clarifies some information about filing taxes with foster children.