Is foster care income taxable? Approaching tax season as a foster parent will likely raise this question and many others about the impact on your income taxes.
Disclaimer: I am not an accountant and I am not providing tax advice. Tax laws change periodically. The information provided here is based on my research and should be used for reference only. You should consult with a tax professional for advice pertaining specifically to your situation.
In today’s article I’ll cover three common tax questions related to foster care.
Is foster care income taxable?
Although there are unique scenarios where foster care income may be taxable, in general it is not considered taxable income. To be considered nontaxable income the following conditions must bet met according to 1040.com:
If you receive foster care payments from a child placement agency, or the state or local government, the payments are nontaxable income. The reasoning here is that the money is for the support of the foster child, and aren’t just going into your pocket for your use, the way other income would.
As a foster parent myself for six years I can vouch for this calling not being a profit making venture. It’s definitely a labor of love! So the meager stipend you get each month is easily consumed by meeting the needs of the child in your home and is not used for other purposes.
Can I claim foster children on my return?
Adding foster children to your tax return is essentially the same as adding any other child. They must meet the requirements of any child you claim as a dependent.
There are two types of dependents:
- A qualifying child
- A qualifying relative
The rules for each type are different. A foster child falls under the qualifying child category.
The are a series of screening questions that determine if a foster child can be claimed as a dependent or not:
- Are they a citizen or resident?
- Are you the only person claiming them as a dependent? You can’t claim a foster child who takes a personal exemption for himself or claims another dependent on his own tax form. The fact that they are children typically takes care of this requirement. I suppose there could possibly be a unique scenario of a foster child close to aging out of the system.
- Are they filing a joint return? This would only apply if you were supporting a married teenager. Not sure that a married teenager in foster care is even a possible scenario.
- Are they related to you? An eligible foster child meets this requirement.
- Do they meet the age requirement? Your child must be under the age of 19 unless they are permanently disabled, then there is no age limit.
- Do they live with you? There are some exceptions, but in general the child must live with you more than half the year.
- Do you financially support them? Your foster child may have a job, but the money they earn must not provide more than half of their support.
- Are you the only person claiming them? This requirement typically applies to children of divorced parents. This scenario can get a little complicated. For foster children that have been with you less than half the year their biological parents may be able to claim them. Consult your tax professional on this one.
If you meet these requirements, as with any child in your home, you can claim them as a dependent on your federal tax return.
I’m a foster parent. Can I get the child tax credit?
To be able to get the child tax credit there is a very similar set of requirements as the dependent screening questions noted previously.
The biggest difference is the family income requirement.
There are seven things to consider:
- Age: The child must be under the age of 17 at the end of the tax year.
- Relationship: A child qualifying as a foster child meets this requirement.
- Support: Your foster child can not provide more than half of their own support.
- Dependent: See the requirements noted in detail above.
- Citizenship: They must meet US citizenship requirements.
- Residence: There are some exceptions, but the child must have lived with you for more than half the year.
- Family Income: This requirement is a bit complex. A high level summary is the child tax credit is reduced if your modified adjusted gross income (MAGI) is above certain amounts, which are determined by your tax-filing status. You can see a summary here.
The post was also featured on The Foster Parents site. Ben and Deb Pugh are foster parents on a mission to help other foster parents. Go check their site out to get tips on fostering.
There are several tax advantages available to you as a foster parent. Definitely take the time to see if your particular situation qualifies. It can save you thousands of dollars.
- Is foster care income taxable? The short answer is no.
- Can I claim foster children on my return? Yes, as long as they meet the dependent requirements.
- Can I get the child tax credit? In general, yes, but the amount depends on your income level and filing status.
Don’t let these tax advantages slip through the cracks in all the craziness of your foster parent life! To determine if you can take advantage of these tax breaks as a foster parent consult with your tax accountant.
Foster Parents Tax Questions
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Photo credit: 401(K) 2012