Updated for filing 2021 tax returns
How do taxes work for foster parents?
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 some valuable tax breaks available.
Who is considered a foster child?
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.
Are there tax breaks for foster parents?
Update for 2022: Foster children younger than 19 who lived with you for more than half of the year could qualify you for the Child Tax Credit. You didn't have to provide more than 50% of their support, either—as long as you housed the child for the majority of the year, you could claim the credit. The Recovery Rebate Credit may also be boosted by your foster child, if you can claim them as a dependent. When you file with us, we'll easily determine all the tax breaks your foster child qualifies for with our simple question-and-answer walkthrough.
There are two tax breaks designed specifically for foster parents; first, any foster care payments you receive from a child placement agency, the state government, or your local government are considered nontaxable income. The money is for the support of the foster child and isn’t just going into your pocket, the way other income would. You don't have to report support payments on your taxes.
Second, you may be able to deduct your unreimbursed foster care expenses as a charitable donation. The expenses are deductible if the agency or organization that placed the child with you can receive charitable donations (so your local social services department would not qualify). If the agency can’t accept charitable donations, the unreimbursed expenses may qualify as out-of-pocket support, which would go towards you being able to claim the child as a dependent.
Can I claim a foster child as a dependent on my tax return?
If you provide at least half of the support for the child and meet the other requirements, you qualify to claim the foster child as a dependent. This means you could even qualify for the head of household filing status, though it does not count for the qualifying widow(er) status.
Remember, however, that any reimbursements or funds provided by the state or agency for the care of the child don't count towards your support. Support from you must be out of pocket to count towards claiming the foster child as a dependent.
Does a foster child affect my Earned Income Credit amount?
Yes, a foster child as defined above does affect your EIC amount so long as they have lived with you for more than half of the year.
Feel good about taxes for foster parents with 1040.com
Adding a foster child to your tax return is the same process as for any other child when you file with 1040.com. It’s just one of the ways we make feel-good taxes a reality—don’t forget to sign up or log in to get started on your return today!