If you’re a foster parent, it can be confusing to try to figure out what tax breaks and advantages are available to you. Foster children are often not eligible for some of the same credits and deductions as biological or adopted children. But there are a couple of valuable tax breaks available.
First, let’s define who a foster child is: A foster child is a child placed with you by judgment, court order, or an authorized placement agency (state or local government organization). If the child has not been placed with you by the courts or a government agency, you can’t claim foster care tax breaks. But you may be eligible to claim the child as a dependent. Check out Who Can You Claim as a Dependent? for more information.
Now, let’s look at two tax breaks specifically for foster parents.
Foster Care Payments
If you receive foster care payments from a child placement agency, the state government, or your local government, the payments are nontaxable income. The reasoning here is that the money is for the support of the foster child, and isn't just going into your pocket, the way other income would.
Foster Care Expenses
You may also be able to deduct your unreimbursed foster care expenses as a charitable donation, if you itemize deductions. The expenses are deductible if the agency or organization who placed the child with you can receive charitable donations. If the agency can’t accept charitable donations, the unreimbursed expenses may qualify as support provided by you. And support provided by you counts toward your being able to claim the child as a dependent. If you provide at least half of the support for the child and meet the other requirements, you qualify for claiming the child as a dependent.
Claiming a Foster Child
Adding a foster child to your tax return is the same as for any other child. Add the child on the Dependent screen, and for the relationship, choose Foster Child. Provided that you meet the requirements, we'll automatically apply the dependent exemption to your return.