Foster Care, Adoption and Taxes
We are always looking for ways to equip and support foster families. As you prepare to file your taxes, we have provided answers to common questions we hear from foster parents. Please note: These answers are applicable to foster and adoptive families in the State of Ohio. Other states may have different laws and regulations surrounding foster and adoptive finances.
Are Foster Care Per Diem Payments Taxable?
No, foster care payments and per diem subsidies paid to you by an agency or county are not generally taxable. These payments are considered reimbursements for expenses such as food, childcare, shelter, clothing, etc. and are not considered income.
Can I Claim My Foster Child as a Dependent?
Use this tool to see if your foster child can be claimed as a dependent.
To claim a foster child as a dependent, the child must have been placed with you by an agency or court order, and meet the IRS’s criteria for a "qualifying child."
These include:
- Age: The child must be under 19 (or 24 if a full-time student).
- Residency: The child must live with you for more than half the year.
- Support: You must provide more than half of the child’s support.
If the foster child meets these criteria, you may claim them as a dependent on your tax return, which could make you eligible for various tax benefits.
What Tax Benefits Are Available to Foster & Adoptive Parents?
Single foster parents who claim a foster child as a dependent may be eligible to file as Head of Household. This filing status offers significant tax advantages, including a higher standard deduction and lower tax rates compared to filing as single.
If you claim a foster child as a dependent, you may also qualify for the Child Tax Credit, which can reduce your tax bill by up to $2,000 per qualifying child. The Child Tax Credit is also refundable, meaning you can receive up to $1,500 as a refund even if you don’t owe taxes.
Childcare expenses paid for dependent foster children under the age of 13 may qualify for the Child and Dependent Care Credit. This credit helps to offset the cost of childcare that enables you to work, look for work, or attend school. It can reduce your tax bill by up to $1,200 for one child or $2,400 for two or more children.
If you adopt a child out of foster care, you may be eligible for the Adoption Credit, which can reimburse up to $16,810 in qualified adoption expenses in 2024. The credit is limited to the amount of tax you owe each year; however, you may carry any unused credit amounts to five future years. Many states also offer state adoption credits.
It’s worth noting that all children who receive a post-adoption subsidy are considered “special needs” for both federal and state tax purposes. A subsidy would include a financial stipend or even health insurance coverage. As a result, most foster children qualify as “special needs” and their adoptive families are able to claim the entire credit without documenting any adoption expenses.
Additional Considerations
Dependent children can only be claimed on one tax return. In the event that your tax return is denied because someone else (for example, a biological family member of the child) already claimed your child on their taxes, you may need to mail in your return. Alternatively, you can electronically resubmit your return without the foster child included and then immediately file an amended return to claim the child. In this situation, you should expect an audit from the IRS. Be prepared to provide documentation showing exactly when the child was placed in your home. It's important to keep good records!
Tax laws are complex and ever-changing. We encourage you to consult with a tax professional to make sure you're taking advantage of all available credits and deductions. They can guide you through the rules and ensure that you get the maximum benefit from your unique tax situation.