Do Foster Parents Get a Tax Credit?

Do Foster Parents Get a Tax Credit?
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If you're a foster parent for the first time this year, there may be some changes in store when filing your taxes. Do foster parents get a tax credit? The technical answer is that they ​do​ get a tax credit. However, you'll need to make sure you fulfill all of the IRS's requirements for being a foster parent in order to claim your credit.

Changes to the Foster Child Tax Credit for 2021

In 2021, it's going to be important to revamp your tax approach if it's been a few years since you were last a foster parent. That's because changes to the tax code in 2018 changed personal and dependent exemptions. That means that the ​$4,050​ you may have claimed per foster child in the past won't be applicable under the Tax Cuts and Jobs Act. Next, take a look at what does apply for foster child tax credits for tax year 2020.

How Much Can Foster Parents Claim?

Under the current tax code, foster parents can claim a foster child as a dependent under the updated child tax credit. The tax credit amount is ​$2,000​ per child. However, there is a caveat. You won't be able to claim a foster child on your tax return if the child's parents are claiming the child as a dependent.

You do have the option to appeal this situation with the IRS if you don't feel that it's right. However, you'll need to be prepared to show proof verifying that you've been the primary caregiver for your foster child during most of the tax year in question.

How to Qualify for a Foster Child Tax Credit

You must meet the IRS's criteria for claiming a foster child in order to take advantage of the dependent tax credit. If necessary, consult with a caseworker or lawyer to ensure that you're categorized as a foster parent based on what is required by the tax code. Here's an overview of what the IRS requires:

  • Is the foster child someone who was placed with you by judgment, court order or an authorized placement agency?
  • Was the foster child under the ​age of 17​ at the end of the tax year being filed?
  • Did the foster child live with you for ​at least six months​ during the year being filed?

How to Deduct Other Expenses

The child tax credit isn't the only place where foster parents get tax breaks. Keep in mind that many of the costs associated with caring for a child that are deductible also apply to foster children. Keep these things in mind:

  • Government foster care payments paid to you are ​not​ taxable.
  • Foster care expenses ​can​ count as charitable contributions.
  • The adoption tax credit will apply if you move to adoption.
  • There is a credit for childcare expenses.
  • Your earned income tax credit can increase with the addition of a foster child.

As a foster parent, it's important to keep good records to differentiate your ordinary income and spending from funds that involve a foster child. Payments made to you by a state or local government agency for the purpose of caring for a child will not be taxed. It's also important to keep track of dates on payments because your ability to claim credits and deductions comes down to being able to prove that you've cared for a child for at least half of a year.

Final Thoughts on Tax Credits for Foster Parents

Yes, things have changed with the 2018 updates to the tax code. That means that you may need to do your homework if you're a first-time or returning foster parent. The big change is that the ​$4,050​ credit is gone. However, there are still many credits and deductions on the table.