is our cache of http://www.turbotax.com/articles/FAQonFosterFamilyTaxes.html.
our cache is the snapshot that we took of the page as we crawled the web.
The page may have changed since that time. Click here for the current page without highlighting.
FAQs on Foster Family TaxesAre my foster-care payments exempt from taxes? Can I take the dependent exemption?
According to the Casey Family Programs, on any given day there are more than 500,000 children living in foster care nationwide. There are a lot of Americans serving as foster parents. If you are a foster family, you face all of the tax issues that face other families, but you also have to grapple with some issues that are unique to foster families.
Yes, according to Internal Revenue Code section 131. If you are providing foster care and receive qualified foster-care payments, you do not need to list them as part of your gross income. So they are, in effect, exempt from income tax. However, you must include in income payments received for more than five qualified foster individuals who are 19 or older and difficulty-of-care payments received for more than ten qualified foster individuals under age 19 or more than five age 19 or older.
More foster care payments can be excluded from your taxable income under a recently-passed law. The law now:
What is a Qualified Foster-Care Payment?
A payment for foster care is a qualified foster-care payment if:
There are some specific exceptions based on the number of foster individuals and type of care provided, but, generally payments you receive as a foster care provider will be excluded from taxable income and are not reported on your tax return.Â These excluded payments include:
The welfare agency making payments to you should be able to verify for you that the payments that you receive are excluded from taxable income. If you do receive other taxable income, any directly related expenses (and some indirect expenses, such as the cost of maintaining your home) may be deductible against that income.
Who is a Foster Individual?
A qualified foster individual who is living in a foster family home in which the individual was placed by:
What are Difficulty of Care Payments?
Difficulty-of-Care Payments are additional payments which are designated by the payor as compensation for providing the additional care of a qualified foster individual required by reason of a physical, mental, or emotional handicap with respect to which the state has determined that there is a need for additional compensation and the additional care is provided in the home of the foster care provider.
Yes, if the child qualifies as a foster child, you can claim a dependent deduction of $3,100 in 2004. To qualify as a dependent, the child must be a member of your household, if placed with you by an authorized placement agency for legal adoption or foster care by you, who lives in your home during the entire year, and is a member of your household.
The child must be a U.S. citizen or resident, and your income must be within certain limits to receive benefit for the dependency exemption, as described in The Personal and Dependent Exemptions.
Can You Cite the IRS Code on That?
Under Internal Revenue Code section 152, in order to be a dependent, a person must meet certain relationship requirements. Subsection 152(a)(9) requires that an individual being claimed as a dependent has a principal place of abode at the taxpayer's home and is a member of the taxpayer's household. Section 152(b)(2) states:
"...a legally adopted child of an individual (and a child who is a member of an individual's household, if placed with such individual by an authorized placement agency for legal adoption by such individual), or a foster child of an individual (if such child satisfies the requirements of subsection (a)(9) with respect to such individual), shall be treated as a child of such individual by blood."
For more information on the dependency exemption, see IRS publication 501: Exemptions, Standard Deduction, and Filing Information.
If you incur unreimbursed, out of pocket expenses as a foster care provider for a child placed by a government or a charitable organization, you may be able to claim those expenses as charitable contributions (as long as you have not assumed legal responsibility for the care of the child and have no profit motive in providing foster care). Examples of unreimbursed expenses include:
For more information on charitable contributions, see IRS Publication 526: Charitable Contributions.
Yes, if your foster child qualifies as a dependent (and in some cases even if the child does not qualify), there are a number of deductions and credits that apply to families. These are beyond the scope of this article, but should be considered when planning for taxes or preparing your tax return. Some of these credits, deductions, and exemptions are described in the following articles.
For additional information, read the following IRS publications, which are available from the IRS in print form or on the IRS website.