Tax Breaks for Foster Parents

young man and woman couple getting tax advice for becoming foster parents

Have you brought a foster child into your home? If so, you know the rewards―and the expenses―that come with raising a child. The federal government offers a variety of potential tax benefits to foster parents, just as they do for all parents. Find out how these tax breaks may apply to you and your family, and what you need to do to qualify.

Who Is Considered a Foster Parent?

For tax purposes, a foster parent is someone who has had a child placed with them by either a court order, judgment or authorized placement agency (such as a state or local government organization). Taking in a family member or a neighbor's child, even for an extended time, does not make someone a foster parent in the eyes of the IRS.

If you qualify as a foster parent, you may be able to claim your foster child as a dependent on your tax return. To qualify as a dependent, a foster child must meet these basic IRS guidelines:

  • The child is under age 19 (or 24 if they're a full-time student) by the end of the year.
  • The child is younger than you and your spouse, if you're married and filing jointly.
  • The child has lived with you for more than half the year.
  • The child receives more than half of their support for the year from you (and not the government or the agency that placed them).
  • The child did not file a joint tax return for the year.
  • The child is not claimed as a dependent on anyone else's tax return.

Claiming a foster child as your dependent doesn't get you an additional deduction on your taxes; these personal exemptions were eliminated as part of the Tax Cuts and Jobs Act in 2017. If you're single, however, having a dependent may enable you to file as head of household, which offers a higher standard deduction, and may help qualify you for a range of tax benefits, such as those listed below.

Keep in mind that claiming a foster child as your dependent does not enable you to file as a qualifying widow or widower with a dependent child. Also, you may be able to claim a dependent relative who is not technically a foster child if they meet the IRS guidelines for qualified dependents.

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What Tax Benefits Are Available to Foster Parents?

Some significant tax benefits may be available to you as a foster parent, though it's important to check guidelines for each to make sure you qualify. Here's a quick list of potential tax benefits:

1. Non-Taxable Foster Care Payments

Whether you receive foster care payments from the government or a child placement agency, support payments are not taxable and do not need to be reported on your tax return.

2. Child Tax Credits

Child tax credits—including 2021 expanded credits of up to $3,600 under the American Rescue Plan Act—may be available. To qualify for expanded child tax credits, a foster child must have been under 18 at the end of 2021, claimed as a dependent on your tax return and meet other IRS requirements. Foster parents must also adhere to maximum income requirements. Foster families who don't qualify for expanded child tax credits may be eligible for regular child tax credits of up to $2,000 per qualifying child.

3. Recovery Rebate (Stimulus) Credit

If your dependent foster child qualified you for a stimulus payment in 2021 but you haven't received payment for this, you might qualify for a Recovery Rebate Credit, which means you can claim the missing amount on your 2021 tax return.

4. Child and Dependent Care Credits

Child care expenses for your foster child may qualify you for Child and Dependent Care Credit, which allows working parents to get a credit for up to 50% of qualifying child care expenses. For the 2021 tax year, the maximum benefit is $4,000 for one qualifying child or up to $8,000 for two or more children.

5. Earned Income Tax Credit

An eligible foster child may help you qualify for the earned income tax credit, which offers relief to low- and moderate-income working people in the form of refundable tax credits. Adding a dependent child generally qualifies you for a larger credit.

6. American Opportunity Tax Credit

The American Opportunity Tax Credit provides tax breaks to help cover expenses during the first four years of post-secondary education. If your foster child qualifies and you meet income guidelines, you may be eligible for up to $2,500 in tax credits.

7. Deductible Expenses

Some of your foster care expenses may be deductible on your taxes as charitable donations if you itemize your deductions and if the agency that provides support is a qualified charity. If you receive foster care payments from a government agency, this deduction is not for you. These expenses must go toward basic support—food, clothing and care. Any unreimbursed expenses that aren't tax deductible can be used to help meet the requirements of claiming your foster child as a dependent.

More Financial Help for Foster Parents

Tax breaks are meant to help foster families offset the high cost of raising children. If your family can use additional financial help making ends meet, you may be able to find resources that offer income assistance, medical benefits or food.