Can You Claim a Foster Child on Your Taxes?

Claiming a foster child on your taxes can lead to various tax benefits. This process involves navigating specific Internal Revenue Service (IRS) rules and requirements. The IRS treats foster children similarly to biological or adopted children for tax purposes, but strict criteria must be met. This guide provides information on the eligibility criteria, potential tax benefits, and necessary documentation.

Determining Eligibility for a Foster Child

Claiming a foster child as a dependent on your tax return hinges on meeting the IRS’s definition of a “qualifying child.” This definition is applied through several specific tests, all of which must be satisfied.

The Relationship Test

The relationship test specifies that a foster child must be placed with you by an authorized agency or court order. This formal placement distinguishes a foster child from other children living in your home.

The Age Test

The age test requires the foster child to be under age 19 at the end of the tax year. If a full-time student, they must be under age 24 at year-end and younger than you. An exception exists for individuals who are permanently and totally disabled, who can be any age.

The Residency Test

The residency test mandates that the foster child must have lived with you for more than half of the tax year. Temporary absences for reasons such as illness, education, or vacation are counted as time lived with you. If a child was born or died during the year, they are considered to have lived with you for the entire year if they lived with you for more than half of their life during that year.

The Support Test

The support test dictates that the foster child must not have provided more than half of their own support for the year. You must have provided more than half of the funds used for their living expenses, such as food, clothing, and shelter. Payments received from a foster care agency for the child’s care generally do not count towards the child’s self-support, as these are considered reimbursements for your expenses.

The Joint Return Test

The joint return test specifies that the foster child cannot file a joint tax return for the year. An exception exists if the child and their spouse file a joint return solely to claim a refund of withheld income tax or estimated tax paid, and they would have had no tax liability on separate returns.

Understanding Applicable Tax Benefits

Once a foster child meets the qualifying child criteria, various tax benefits may become available. These benefits can help offset the costs associated with caring for a foster child. Their availability and amount depend on the taxpayer’s income and other specific circumstances.

The Child Tax Credit (CTC)

The Child Tax Credit (CTC) can be claimed for a qualifying foster child. This credit could be worth up to $2,000 per qualifying child, with some of it being refundable depending on income. A foster child must generally be under age 17 at the end of the tax year to qualify for the CTC.

The Credit for Other Dependents (ODC)

For dependents not qualifying for the Child Tax Credit, the Credit for Other Dependents (ODC) may apply. This credit can provide up to $500 per qualifying dependent. A foster child meeting general dependent rules but not the CTC age requirement might qualify for the ODC.

The Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) can be increased by having a qualifying foster child. The EITC is a refundable credit designed for low to moderate-income individuals and families. For EITC purposes, the support test does not apply, but the foster child must have a valid Social Security number and reside with you in the United States for more than half the year.

Filing as Head of Household

Filing as Head of Household is a beneficial tax status available to taxpayers with a qualifying foster child. This status typically offers a lower tax rate and a higher standard deduction compared to filing as single. To qualify, you must be unmarried or considered unmarried and pay more than half the cost of maintaining a home for yourself and the qualifying foster child.

Gathering Necessary Information for Your Return

Claiming a foster child on your tax return requires collecting specific documentation to support your claim. Organizing this information before filing can streamline tax preparation and address potential IRS inquiries. Necessary records verify the foster child’s identity, placement, and residency.

The Child’s Social Security Number (SSN)

The child’s Social Security Number (SSN) is essential for claiming them as a dependent. Without a valid SSN, you generally cannot claim the child for tax benefits like the Child Tax Credit. If the foster child does not have an SSN, you may need to apply for one.

Proof of Residency

Proof of residency is important to demonstrate the foster child lived with you for more than half the year. Documentation such as records from the foster agency, court orders, or school records can serve this purpose. Medical records or other official documents showing the child’s address can help substantiate residency.

Records of Support

Records confirming the foster child did not provide more than half of their own support are relevant. While foster care payments are considered reimbursements and not taxable income, keep records of any out-of-pocket expenses incurred for the child’s support. This documentation can include receipts for food, clothing, and other necessities.

Foster Care Agency Records

Records from the foster care agency that confirm the child’s placement are crucial. This includes the placement agreement from the government agency or court that placed the child in your care. Retain these documents and any other relevant information, such as the child’s date of birth, in case the IRS requires further verification.