Foster Child Care and Income Tax Breaks

Foster
Child

A foster child from an income tax point of view is not the same as a child or dependent in the traditional sense. Unlike a child or dependent that legally belongs to you either by birth or relation (your son, daughter, grandchild, etc.) or adoption, a foster child is placed with you by either a court order, judgement, or authorized placement agency (such as a state or local government organization). However, you can still claim a foster child on your taxes if they qualify as your dependent. The one exception to this is the qualifying widow(er) with dependent child filing status as you cannot claim a foster child as a dependent for this status.

If you later adopt a foster child and it is finalized in a tax year and they live with you for at least half the year, you may be eligible for the Adoption Tax Credit. For tax purposes, both foster children and adopted children are treated the same as biological children.

To quickly determine the eligibility of a potential dependent, use the free eFile.com DEPENDucator or dependent tax tool.

Foster Children and Taxes

When you take care of a foster child, you may be eligible for various tax savings for dependents. Child dependents can help lower your taxes as the IRS provides programs for parents or guardians in order to offset some of the many costs of raising children.

Here are a few key points about foster children and your income taxes:

If you receive government foster care payments, these are considered nontaxable income and thus do not need to be reported on your tax return.
Foster care expenses may be deductible as charitable expenses.
If you adopt the foster child, you can claim the Adoption Tax Credit.
If a foster child is claimed as a dependent, you can claim the Child and Dependent Care Credit if you pay for daycare for your foster child.
You can also claim the Child Tax Credit and a higher Earned Income Tax Credit as applicable; since there is no specific foster child tax credit, you can instead claim regular dependent-related credits and deductions.

Review the chart below to compare tax deductions and tax credits you may be able to claim on your 2022 Tax Return via eFile.com for having children/dependents or foster children. Claiming foster kids on your taxes is easy on eFile.com; add your dependent information to your account and eFileIT by April 15, 2023.

Deduction/Credit

Child/Dependent or Foster Child

Foster Care Payments

A foster care payment is only related to having a foster child; it can be a payment or series of payments from your state or local government or from a child placement agency. A foster care payment is nontaxable income because the payment is only for supporting the foster child. You do not have to pay taxes on the payment, so this is a valuable way to save on your next tax return. However, you should keep detailed records of your foster care payments and other expenses relating to your foster child.

Foster Care Expenses

If you itemize deductions, you may be able to deduct foster care expenses as a charitable donation if they are unreimbursed. The expenses must be out-of-pocket and used to clothe, feed, and care for the foster child. However, this only applies if the organization or agency who placed the child with you can receive charitable donations. If they cannot accept the donations, any unreimbursed expenses may qualify as support you provide. You may qualify to claim the foster child as a dependent as long as you provide at least half of the child's support and meet other requirements for claiming a dependent.

Claiming Dependents for Deductions

You can add a foster child to your return as a dependent in the same way you claim a child as a dependent. To do this, add the Child or Other Dependent screen in your eFile.com account and select "Foster Child" as the relationship. The eFile tax app will automatically add the dependent to your return if you qualify. Find out if your child or foster child qualifies as your dependent by using our free DEPENDucator or dependent tax tool.

Adoption Tax Credit

You can only claim this tax credit for adoption if you have an adopted child or dependent; it cannot be claimed for foster children. If you later adopt your foster child, you can then claim the Adoption Tax Credit. This credit can offset your taxes owed when you file; if you anticipate adopting a child, you should consider submitting a new W-4 to your employer so you can take full advantage of this nonrefundable credit.

Child Tax Credit

You can claim this tax credit if you have a child dependent or a foster child which will help you offset the many expenses of raising a child. Find out of you qualify for the credit by using our free CHILDucator Child Tax Credit tax tool. This popular tax credit can be worth up to $2,000 per qualifying dependent, meaning you could claim it for multiple foster children, a foster child plus a child you raised from birth, and other combinations.

Child and Dependent Care Credit

This credit allows you to save taxes on childcare expenses you paid for your child dependent or foster child. Use our CAREucator tax tool to discover if you can claim the credit on your tax return. You may be able to claim up to $2,100 on your next tax return.

Earned Income Tax Credit

This refundable tax credit supplements the income you earned through working, either for yourself (as self-employed) for another person. Your credit amount increases when you claim one or more child or foster child as a dependent. To find out if you can claim the Earned Income Tax Credit, try out our EITCucator tax tool.

If you have a foster child to claim on your taxes, add them to your eFile account by answering all applicable questions. As you enter information, the eFile app will continuously add, calculate, and adjust credits and deductions based on your dependents, filing status, income, and expenses.

Start Federal and State Tax Returns

Additionally, if the foster child can be claimed as a dependent and they are enrolled in school, you may be eligible for various school-related tax deductions and education tax savings, such as The American Opportunity Tax Credit. Dependents on your tax return can help save you money when you earn taxable income and spend it on keeping up a home for your child and paying for their expenses.

See more details on these IRS publications:

How to Claim a Foster Child on a Tax Return

When filling out Form 1040 to file your income tax return, dependents are claimed on the first page by filling in their identifying details. Additional child or dependent forms include the Schedule 8812, Form 2441, and others - eFileIT these forms. Instead of filling in complicated forms to claim your foster child or other dependent, use eFile.com to prepare your return. The 1040, Schedule 8812, and all other applicable dependent tax forms are generated and filled out for you as you enter information. Does your foster child qualify as a dependent?

It's easy to claim your foster child on your tax return on eFile.com. Simply answer the questions about your dependent when you add them to your return and we will tell you what deductions and credits you qualify for. Contact an eFile.com Taxpert if you have further questions or concerns about tax breaks related to foster children.

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