Can I Claim Foster Kids on My Income?

by Beverly Bird, Demand Media
    Your foster child may qualify as your dependent.

    Your foster child may qualify as your dependent.

    Fostering a child in need can be rewarding, and it can also help you save on taxes. Depending on who placed the child in your home, the IRS may consider her your dependent for tax purposes. You usually don't have to pay income tax on the money the government pays you to care for her, either.

    Income From Fostering

    If the government or a foster agency compensates you for the basic expenses you incur caring for your foster child -- such as food and shelter -- this isn't income; it's support for the child. Therefore, you don't have to claim the payments on your tax return, but a few exceptions exist. If you're caring for 10 or more kids or for children with special difficulties, this puts you in the business of fostering. The IRS views these payments as income, so you'd have to report it on Schedule C of your tax return. However, you can also deduct your business expenses from this income on Schedule C, so you probably won't pay income taxes on all the money you take in, just the difference between the income and your expenses.

    Foster Children as Dependents

    The IRS says foster kids are your dependents if a court order or an authorized agency, such as your state government or a foster agency, placed them in your home. In that case they're "qualifying children." Provided your situation meets a few other requirements as well, you can claim dependent deductions for each of them on your return.

    Age Requirements

    Your foster child must be younger than 19 to qualify as your dependent, or younger than 24 if she's a full-time student. Your age matters as well. If you're not married, your foster child must be younger than you are. If you're 22, and if your foster child is a 23-year-old college student, you can't claim her as a dependent. If you're married, your foster child must be younger than either you or your spouse, not both of you. There are no age restrictions if your foster child meets the IRS's standards for permanent disability.

    Residence and Support

    Your foster child must live in your home at least half of the year to qualify as your dependent. This is easy to calculate, but the self-support test for qualification is a bit more complicated. The IRS requires that your foster child not contribute more than half to her living expenses during the tax year. The payments you receive from the government for fostering your child don't count as her income, so you don't have to factor this in. However, the self-support test might become an issue if you have an older foster child who is employed.

    A Potential Problem

    Unfortunately, you can only claim a child as your dependent if you know her Social Security number. You must include this in your tax return. These numbers are not always available to foster parents because of privacy concerns. Therefore, even if your foster kids meet all IRS qualifications as your dependents, you may not be able to claim them. If you're in the process of adopting your foster child, however, this changes. You can apply to the IRS for an Adoption Taxpayer Identification number that you can use on your return in lieu of the child's Social Security number.

    About the Author

    Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.

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