Do You Claim a Foster Child on Your Taxes?

Many foster parents wonder if they can claim their foster children on their taxes. Understanding the relevant tax laws can help foster families access financial benefits that assist with the costs of care. The Internal Revenue Service (IRS) provides guidelines for determining if a foster child qualifies as a dependent for tax purposes and outlines the credits and deductions available.

Qualifying as a Foster Child for Tax Purposes

For a foster child to be considered a “qualifying child” for tax benefits, they must meet several IRS dependency tests. The relationship test is met if the child is placed with the taxpayer by an authorized agency or court order.

The age test requires the child to be under age 19 at the end of the tax year, or under age 24 if a full-time student, or any age if permanently and totally disabled. The child must also be younger than the taxpayer, or their spouse if filing jointly. For the residency test, the foster child must have lived with the taxpayer for more than half of the tax year, at least 183 days. Temporary absences for schooling, medical care, or military service are counted as time living at home.

The support test stipulates that the child must not have provided more than half of their own support for the tax year. Foster care payments received from agencies are considered non-taxable income and are for the child’s support, so they do not need to be reported as income by the foster parent. The joint return test means the child cannot file a joint tax return for the year, unless it is filed solely to claim a refund of withheld taxes. Meeting these criteria is required for claiming any tax benefits.

Available Tax Benefits for Foster Parents

Once a foster child meets the qualifying child criteria, foster parents may be eligible for several tax benefits. The Child Tax Credit (CTC) offers up to $2,000 per qualifying child, with up to $1,700 of that refundable through the Additional Child Tax Credit (ACTC) if the credit amount exceeds tax liability. To qualify for the CTC, the child must be under 17 at the end of the tax year and possess a valid Social Security Number. The full credit amount begins to phase out for single filers with incomes over $200,000 and for joint filers with incomes over $400,000.

The Credit for Other Dependents (ODC) is available for dependents who do not qualify for the CTC, offering up to $500 per eligible individual. This credit is non-refundable. A qualifying foster child impacts foster parents’ eligibility for the Earned Income Tax Credit (EITC).

The Credit for Child and Dependent Care Expenses may apply if foster parents pay for childcare so they can work or look for work. For this credit, the qualifying child must be under age 13 or physically or mentally unable to care for themselves. This credit is calculated based on income and a percentage of expenses incurred for care.

Necessary Information and Documentation

To claim a foster child on a tax return, foster parents must gather information and documentation. A primary requirement is the foster child’s Social Security Number (SSN) or Taxpayer Identification Number (TIN). Without a valid SSN, the child cannot be claimed as a dependent for tax credits. If an SSN is unavailable, foster parents may need to apply for one or, in adoption-related circumstances, an Adoption Taxpayer Identification Number (ATIN).

Proof of the child’s placement by an authorized agency or court order is important. This documentation, such as foster care placement agreements or court documents, verifies the legal relationship and placement. Records of the child’s residency with the foster parent for more than half the year are important to support the claim, including school or medical records, or statements showing the child’s address.

Maintaining records of support provided to the child, such as receipts for food, clothing, and shelter, helps demonstrate that the foster parent provided over half of the child’s support. Accurate record-keeping is necessary for substantiating claims and can be necessary in case of an IRS review.

Reporting Foster Child Information on Your Tax Return

After gathering all necessary information, foster parents can proceed with reporting the foster child on their tax return. The foster child’s information, including their name and Social Security Number, is entered in the “Dependents” section of Form 1040, U.S. Individual Income Tax Return. This section serves as the primary place to list all qualifying dependents.

To claim benefits like the Child Tax Credit and the Credit for Other Dependents, a completed Schedule 8812, Credits for Qualifying Children and Other Dependents, must be attached to Form 1040. This schedule is used to calculate the amounts of these credits. For the Child and Dependent Care Expenses Credit, Form 2441 is used.

It is important to accurately transfer the prepared information onto the relevant forms and lines. The IRS may review dependency claims, making precision in reporting necessary to avoid potential issues. Tax software often guides users through this process, but understanding where the information is reported provides clarity for foster parents.