Can You Claim Your Child on Taxes if They Are in Foster Care?

When a child enters the foster care system, a biological parent’s ability to claim them as a dependent on their taxes depends on a specific set of Internal Revenue Service (IRS) rules. The ability to claim a child can unlock tax benefits, but the answer is not always straightforward. Eligibility is determined by dependency regulations designed for complex family situations.

Meeting the Qualifying Child Tests

To claim a child as a dependent, the IRS requires the child to meet four distinct tests. These are the relationship, age, residency, and support tests. For a biological parent, the relationship test is automatically met. The age test is also straightforward, requiring the child to be under age 19 at the end of the tax year, or under age 24 if they were a full-time student for at least five months of the year.

The residency test mandates that the child must have lived with the taxpayer for more than half of the year. This presents a hurdle if the child has been in a foster home for the majority of the year. The IRS does allow for “temporary absences,” such as for school or medical care, to be counted as time the child lived at home. However, time spent in foster care is not considered a temporary absence, because the placement is made under a formal court order or agency agreement.

The support test requires that the child did not provide more than half of their own support during the year. This test can also be difficult for a biological parent to meet. Payments from a state or local agency to a foster parent for the child’s care are considered support provided by the state, not by the biological parent. If these government payments constitute more than half of the child’s total support for the year, it can prevent the biological parent from claiming the child as a dependent under the qualifying child rules.

Applying the Tie-Breaker Rules

In situations where more than one person meets the requirements to claim the same child, the IRS has established a set of “tie-breaker” rules. A non-parent, such as a foster parent, can claim a child only if no parent is eligible to do so, or if an eligible parent chooses not to claim the child. If a biological parent meets all the dependency tests, they have the right to claim the child over a non-parent.

If both of the child’s parents are eligible but do not file a joint tax return, the right to claim the child goes to the parent with whom the child lived for the longer period during the year. If the child lived with each parent for the same amount of time, the parent with the higher Adjusted Gross Income (AGI) can claim the child. If no parent is eligible to claim the child, the qualifying person with the highest AGI has the right to do so.

Impact on Tax Credits and Filing Status

Successfully claiming a child as a dependent provides access to tax benefits, but many of these have their own specific requirements that can be challenging for a biological parent whose child is in foster care. The primary obstacle is often a strict residency rule.

To qualify for several benefits, the child must have lived with the taxpayer for more than half the year. A child’s placement in foster care for most of the year prevents the biological parent from meeting this “lived with you” test, making them ineligible for:

• The Child Tax Credit (CTC). In such cases, the parent might be eligible for the smaller Credit for Other Dependents (ODC).
• The Head of Household filing status. This status requires the taxpayer to have paid for more than half the cost of keeping up a home for a qualifying person who lived with them.
• The Earned Income Tax Credit (EITC), a refundable credit designed to assist low- to moderate-income working families.

The Qualifying Relative Test

If a biological parent cannot claim their child under the Qualifying Child rules, there is an alternative set of criteria known as the Qualifying Relative test. This test has different requirements and may offer a path to claiming a dependency exemption, though it is often more difficult to meet in a foster care situation.

The first requirement is the gross income test. To be claimed as a qualifying relative, the child’s gross income for the tax year must be less than a certain limit set by the IRS.

The most significant challenge under this test is the support requirement. To claim a child as a qualifying relative, the taxpayer must have provided more than half of the child’s total support for the entire year. This is a stricter standard than the one for a qualifying child. Any child support payments made by the biological parent would count toward this total. However, funds provided by a state agency to the foster family for the child’s care are considered support from a third party, making it very difficult for the biological parent to prove they provided the majority of the financial support.